Lunsford v. AMERICAN GUARANTEE & LIABILITY INS.

• Decision Date: 30 August 1991
• Docket Number: No. C-91-1264 DLJ.,C-91-1264 DLJ.
• Citation: 775 F. Supp. 1574
• Court: U.S. District Court — Northern District of California
• Parties: James B. LUNSFORD; Regina T. Charboneau; and Bay Vista Enterprises, Inc., Plaintiffs, v. AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY, and Does 1-10, Defendants.

775 F. Supp. 1574

James B. LUNSFORD; Regina T. Charboneau; and Bay Vista Enterprises, Inc., Plaintiffs, v. AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY, and Does 1-10, Defendants.

No. C-91-1264 DLJ.

United States District Court, N.D. California.

August 30, 1991.

Raymond C. Oleson, Sole Practitioner, San Francisco, for plaintiffs.

Paul E.B. Glad of Sonnenschein, Nath & Rosenthal, San Francisco, for defendants.

ORDER

JENSEN, District Judge.

On August 28, 1991, this Court heard defendant's motion for summary judgment and plaintiffs' motion for partial summary judgment. Paul E.B. Glad of Sonnenschein, Nath & Rosenthal appeared for defendant American Guarantee & Liability Insurance Company. Raymond C. Oleson appeared for plaintiffs James B. Lunsford, Regina T. Charboneau, and Bay Vista Enterprises, Inc. Having considered the papers submitted, the arguments of counsel, the applicable law, and the entire record herein, the Court GRANTS defendant's motion and DENIES plaintiffs' motion for the following reasons.

I. BACKGROUND

This is an action alleging bad faith breach of an insurance contract for failure to defend the plaintiffs in a separate action. Defendant American Guarantee & Liability Insurance Company ("American") issued a liability insurance policy (the "Policy") to Bay Vista Enterprises, Inc. ("Bay Vista") providing coverage for "personal injury," which is defined in the policy as including "malicious prosecution." The present action focuses on this provision.

Bay Vista is a California corporation which, at all times relevant to the present action, operated a restaurant in San Francisco known as "Regina's Restaurant" or "Regina's at the Regis." Plaintiff James B. Lunsford is the President of Bay Vista and one of its directors and shareholders, and plaintiff Regina T. Charboneau is employed as the chef of Regina's Restaurant.

On or about November 3, 1989, Bay Vista filed a Complaint for Declaratory Relief and Malicious Prosecution ("Complaint") against the Maryland Hotel, Ltd. ("Maryland Hotel") in San Francisco Superior Court. Maryland Hotel operates The Regis Hotel in San Francisco, California, at which Regina's Restaurant is located. That action was subsequently removed to the United States Bankruptcy Court for the Northern District of California on or about December 4, 1989. At that time, Maryland Hotel also filed a Counterclaim in Adversary Proceeding No. 3-89-0597 TC against James Lunsford, Regina Charboneau, and Bay Vista Enterprises, Inc. The Counterclaim alleges various causes of action in contract, fraud, and tort stemming from Bay Vista's failure to perform its obligations under its lease with Maryland Hotel.

The Counterclaim also includes three causes of action for abuse of process based on Bay Vista's original Complaint and a Notice of Pending Action. Specifically, claims Ten and Eleven allege that the state court Complaint alleging claims of malicious prosecution against the Hotel was filed for an improper purpose, i.e., to intimidate the Hotel from pursuing its breach of lease claims, to exact concessions from the Hotel, and to disrupt the Hotel's business for the advantage of the insureds. See Counterclaim ¶¶ 67-78. Claim Twelve alleges that the insured served Maryland Hotel with a Notice of Pending Action ("Notice") on November 3, 1989, against Maryland Hotel's property, and that such Notice was served for the improper purpose of intimidating Maryland Hotel and disrupting its business, but that the Notice was not in fact recorded with the County Recorder. Id. ¶¶ 79-83. The Counterclaim does not allege that any of these proceedings were pursued to a legal termination in the Hotel's favor, and there is nothing in the record before this Court establishing that those proceedings have been resolved against plaintiffs as of this date.

The Policy issued to Bay Vista effective during this period contained a Commercial General Liability Coverage section. The general "Insuring Agreement" of the Policy covering liability for bodily injury and property damage provided as follows:

We will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS-COVERAGES A AND B.... We will have the right and duty to defend any `suit' seeking those damages.

See Policy § I.A.1.a (emphasis added) (attached as Exhibit 1 to the Declaration of Lloyd Johnson (filed May 1, 1991)). Similarly, the "Insuring Agreement" of the Policy covering liability for personal and advertising injury provided as follows:

We will pay those sums that the insured becomes legally obligated to pay as damages because of `personal injury' or `advertising injury' to which this insurance applies. No other obligation or liability to pay sums or Perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS — COVERAGES A AND B. We will have the right and duty to defend and `suit' seeking those damages.

Id. § I.B.1.a (emphasis added). Finally, the term "personal injury" is defined in the Policy as follows:

`Personal injury' means injury, other than `bodily injury,' arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. Wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies;

d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or

e. Oral or written publication of material that violates a person's right of privacy.

Id. § V.10 (emphasis added).

On or about December 5, 1989, plaintiffs tendered the defense of the Counterclaim to American. After that time, a series of letters was exchanged between counsel for plaintiffs, Raymond C. Oleson ("Oleson") and representatives of American. Plaintiffs, relying on the California Court of Appeals decision in CNA Casualty of California v. Seaboard Surety Co., 176 Cal. App.3d 598, 222 Cal.Rptr. 276 (1986), consistently maintained that Maryland Hotel's claims for abuse of process fell under the policy provisions regarding personal injury, and therefore American was bound to defend. In a six-page, single-spaced letter dated March 14, 1990, counsel for American set forth its "coverage opinion" of the Counterclaim, concluding that the abuse of process claims both in their characterization and their factual allegations failed to arise to a claim for malicious prosecution as they failed to establish or even infer that the original action giving rise to the abuse of process claims had terminated against the insureds and in Maryland Hotel's favor. Thus American concluded that under California law, the particular circumstances, and relevant law from other jurisdictions, Maryland Hotel could not assert, much less succeed, on a critical element of a malicious prosecution claim, i.e., the termination of the prior action in its favor. American also found the CNA Casualty case to be distinguished from the present. Based on the foregoing, American therefore declined to take up the tendered defense.

On March 15, 1991, plaintiffs filed the present action in San Francisco Superior Court, stating five causes of action: (1) breach of the covenant of good faith and fair dealing; (2) breach of an insurance contract; (3) claim for declaratory relief; (4) breach of fiduciary duty; and (5) attorney's fees incurred in the present motion. On April 26, 1991, American filed a notice of removal to this Court on the basis of diversity jurisdiction. On May 1, 1991, American filed the present motion for summary judgment on all claims as to all plaintiffs, contending that the Hotel's claims for abuse of process do not fall within the Policy as they cannot constitute claims for malicious prosecution until the insureds' original claims are found against them. Plaintiffs filed a cross-motion for partial summary judgment on the breach of contract and the breach of the covenant of good faith and fair dealing claims. Plaintiffs also move pursuant to Federal Rule of Civil Procedure 56(f) for an opportunity to conduct discovery with regard to its claims for punitive damages on the first and fourth claims for relief.

II. SUMMARY JUDGMENT STANDARD

Under Rule 56(c) of the Federal Rules of Civil Procedure, a district court may grant summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

Recognizing that summary judgment motions can contribute significantly to the resolution of litigation when there are no factual issues, the Supreme Court and the Ninth Circuit have established the following standards for consideration of such motions: "If the party moving for summary judgment meets its initial burden of identifying for the court those portions of the materials on file that it believes demonstrates the absence of any genuine issues of material fact," the burden of production then shifts so that "the nonmoving party must set forth, by affidavit or as otherwise provided in Rule 56, `specific facts showing that there is a genuine issue for trial.'" T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (quoting Fed.R.Civ.P. 56(e) (emphasis added) and citing Kaiser Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 1100, 1103-04 (9th Cir.), cert. denied, 479 U.S. 949, 107 S.Ct. 435, 93 L.Ed.2d 384 (1986) and Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986)). With respect to these specific facts offered by the non-moving party, the court does not...