Opinion
3:21-cv-01758-YY
07-19-2023
SIRI SINGH SAHIB CORPORATION; SIKH DHARMA INTERNATIONAL; UNTO INFINITY, LLC; and 3HO FOUNDATION INTERNATIONAL, Plaintiffs, v. THE CINCINNATI SPECIALTY UNDERWRITERS INSURANCE COMPANY, Defendant.
FINDINGS AND RECOMMENDATIONS
YOULEE YIM YOU, UNITED STATES MAGISTRATE JUDGE.
Plaintiffs, which are religious non-profit entities, have brought this insurance coverage action against their insurer, defendant Cincinnati Specialty Underwriters Insurance Company. Plaintiffs are currently defending themselves in a separate action pending in Los Angeles County Superior Court, Satsunderta Khalsa v. Sikh Dharma Int., et al., No. 20STCV29859 (the “Khalsa Lawsuit”), against claims that the now-deceased Yogi Bhajan sexually abused Khalsa while she was a minor in plaintiffs' care and custody. First Am. Compl., ECF 9.
Defendant seeks leave to amend its answer to include a counterclaim for a declaratory judgment that “[t]here is no duty to pay defense costs for any of the unlitigated claims related to the alleged abuse by Yogi Bhajan under either of the Policies” issued by defendant. Supp. Br. Mot. Amend, ECF 43. Because the court is without jurisdiction to render such a judgment, and further because such a declaratory judgment would not necessarily resolve claims by other individuals alleging sexual abuse by Yogi Bhajan and could abridge the rights of individuals who have not appeared in this case, defendant's motion for leave to amend should be DENIED in this respect. Defendant further seeks to amend its answer to remove references to another claimant who alleges abuse by Yogi Bhajan, and add a counterclaim seeking a declaratory judgment that defendant may withdraw from defense of plaintiffs in the Khalsa lawsuit. Suppl. Brief, App. 1, 20-21, 23, ECF 43. Plaintiffs do not dispute these other amendments, and previously admonished defendant about “revealing confidential claimant information in the public record.” Resp. 17, ECF 24. Thus, defendant's motion for leave to amend with respect to these other amendments should be GRANTED.
Granting a motion for leave to amend is clearly within a magistrate judge's jurisdiction. See U.S. Dominator, Inc. v. Factory Ship Robert E. Resoff, 768 F.2d 1099, 1102 n.1 (9th Cir.1985), superseded by statute on other grounds as recognized in Simpson v. Lear Astronics Corp., 77 F.3d 1170 (9th Cir. 1996) (finding that, where a motion for leave to amend was granted, it “was properly treated as a nondispositive motion”). However, rather than resolving defendant's motion in both findings and recommendations and an order granting the motion to amend in part, the entire motion is addressed in these findings and recommendations.
I. Relevant Procedural History
On October 6, 2022, defendant filed a motion to amend its answer (ECF 21), which the court granted on January 18, 2023. ECF 34. Defendant filed an amended answer on January 25, 2023, ECF 35; however, the court struck the amended answer because it differed from the proposed amended answer that defendant had attached to its motion to amend, in that it expanded the scope of defendant's proposed counterclaim to seek a declaratory judgment that “[t]here is no duty to pay defense costs for any of the unlitigated claims related to the alleged abuse by Yogi Bhajan.” ECF 40; compare ECF 21 at 31 with ECF 35 at 21. The court then directed defendant file supplementary briefing on (1) “whether it should be permitted to amend its counterclaim to seek a declaration that includes unlitigated claims related to alleged abuse by Yogi Bhajan,” and (2) “whether the standards under Rule 16 and, if applicable, Rule 15 have been satisfied.” ECF 40. For purposes of this analysis, the court construes defendant's supplemental brief as a new motion to amend. Plaintiffs have filed a response to defendant's supplemental brief (ECF 46), and defendants have filed a reply (ECF 48).
II. Rule 16
Because defendant filed its motion to amend after the deadline to join claims, see Scheduling Order, ECF 17, the motion must be first evaluated under Federal Rule of Civil Procedure 16(b)(4), which provides that “[a] schedule may be modified only for good cause and with the judge's consent.” In re W. States Wholesale Nat. Gas Antitrust Litig., 715 F.3d 716, 737 (9th Cir. 2013), aff'd sub nom. Oneok, Inc. v. Learjet, Inc., 575 U.S. 373 (2015). In applying Rule 16, the court “primarily considers the diligence of the party seeking the amendment.” Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992). “The district court may modify the pretrial schedule ‘if it cannot reasonably be met despite the diligence of the party seeking the extension.'” Id. (quoting Rule 16 advisory committee's notes (1983 amendment)). Prejudice to the party opposing the modification may provide another basis for denying a motion to amend, but “the focus of the inquiry is upon the moving party's reasons for seeking modification.” Id.
Defendant asserts that it acted diligently in seeking leave to amend because its motion came shortly after it received discovery responses from plaintiffs in which they objected to providing documents relating to other claims of sexual abuse committed by Yogi Bhajan. Reply 8, ECF 48. Defendant claims these responses brought into focus the scope of this case-whether it pertained exclusively to the Khalsa lawsuit pending in California or included other claims of sexual abuse involving Yogi Bhajan. Plaintiffs posit that defendant was not diligent because it has known about these unlitigated claims since July 17, 2020, when plaintiffs tendered coverage for them. Resp. 3, 12, ECF 46.
Defendant has demonstrated sufficient diligence to justify a change in the scheduling order. The dispute over the scope of this lawsuit came to a head when plaintiffs objected to defendant's discovery requests regarding the other sexual abuse claims via their responses submitted on August 18, 2022. Edmundson Decl., Ex. 2, 6-8, 13-15, ECF 22. Then, between the end of August and mid-September 2022, the parties were engaged in conferrals regarding discovery issues, including whether this lawsuit included the duty to defend and indemnify for sexual abuse claims other than those in the Khalsa lawsuit. Reply 9, ECF 48; Mockford Decl., Ex. 1, 1, ECF 25-1. Shortly thereafter, defendant filed its motion for leave to amend on October 6, 2022. ECF 21. Under these facts, defendant has acted with reasonable diligence in moving to amend its answer.
III. Rule 15
Once a party satisfies Rule 16‘s “good cause” standard, the party must then demonstrate that the amendment is allowed under Rule 15. Id. at 608. Rule 15 states that “[t]he court should freely give leave when justice so requires.” FED. R. CIV. P. 15(a)(2). This standard is applied with “extreme liberality.” Eminence Cap., LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003).
The decision to grant or deny leave to amend is within the sound discretion of the court. Foman v. Davis, 371 U.S. 178, 182 (1962). In Foman, the Supreme Court provided the following factors to guide the court's discretion:
In the absence of any apparent or declared reason-such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.-the leave sought should, as the rules require, be “freely given.”371 U.S. 178, 182 (1962). “A district court does not err in denying leave to amend where the amendment would be futile or where the amended complaint would be subject to dismissal.” Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991) (internal citations omitted); see also Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995) (“Futility of amendment can, by itself, justify the denial of a motion for leave to amend.”). Leave to amend is properly denied based on futility where the movant could not present facts that would cure the deficiency in the pleading. United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 995 (9th Cir. 2011).
The Declaratory Judgments Act provides that “[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). The Ninth Circuit has explained that application of this statute requires a two-part test: first, to determine whether the court has jurisdiction to issue the declaratory judgment, “the court must inquire whether there is a case of actual controversy within its jurisdiction”; then, if a case or controversy exists, the court determines whether to exercise its discretion guided by the factors the Supreme Court provided in Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942). Am. States Ins. Co. v. Kearns, 15 F.3d 142, 143-44 (9th Cir. 1994); see also Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) (explaining that the Declaratory Judgment Act confers on federal courts “unique and substantial discretion in deciding whether to declare the rights of litigants”). Brillhart instructs courts to “avoid needless determination of state law issues, discourage litigants from filing declaratory actions as a means of forum shopping, and avoid duplicative litigation.” Argonaut Ins. Co. v. St. Francis Med. Ctr., 17 F.4th 1276 (9th Cir. 2021) (internal quotations omitted).
The Ninth Circuit has explained that the Brillhart factors are not exhaustive, and has suggested other considerations, including “whether the declaratory action will settle all aspects of the controversy; whether the declaratory action will serve a useful purpose in clarifying the legal relations at issue; whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a ‘res judicata' advantage; or whether the use of a declaratory action will result in entanglement between the federal and state court systems.” Gov't Emples. Ins. Co. v. Dizol, 133 F.3d 1220, 1225 n.5 (9th Cir. 1998) (quoting Kearns, 15 F.3d at 145 (J. Garth, concurring)). “In addition, the district court might also consider the convenience of the parties, and the availability and relative convenience of other remedies.” Id.
Here, because defendant seeks an expansive judgment that would bear on a host of unidentified prospective litigants, defendant has failed to state an actual controversy. The cases defendant relies upon to assert that such a declaration is permissible are inapposite. In Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, the Supreme Court held that a justiciable controversy existed as to the insured's eligibility for disability benefits. 300 U.S. 227, 243-44 (1937). The court permitted the insurer to seek a declaratory judgment as to whether the insured was disabled under the policy and whether the insured's policies remained active after he stopped paying premiums. Id. Notably, the Supreme Court found that a declaratory judgment was warranted because “[t]here would be no difficulty . . . in passing a conclusive decree applicable to the facts found and to the obligations of the parties corresponding to those facts.” Id. at 243. The insured's “condition at the time he stopped payment” was an immutable, definite fact that controlled the outcome of the dispute and finally determined the rights and obligations of the parties. Id.
In contrast, here, coverage under the policies depends upon the unique facts alleged by each prospective claimant. Although defendant asserts that the determinative facts for rendering the declaratory judgment are already established-namely, the date of Yogi Bhajan's death, the language of plaintiffs' policies, and the existence of claims arising from the alleged sexual abuse-those facts alone do not permit the court to determine that defendant has no duty to defend “for any of the unlitigated claims related to the alleged abuse by Yogi Bhajan.” This court cannot conclusively rule out that a potential claimant could later come forward with allegations that fall within coverage under the policies.
Defendant also relies upon Aetna Cas. & Sur. Co. v. Gen. Dynamics Corp, which is distinguishable for the same reason. There, the Eighth Circuit determined that a justiciable controversy existed as to an insurer's liability for environmental pollution in sixteen sites, even though no complaints had been filed as to four of those sites. 968 F.2d 707, 709 (8th Cir. 1992). The court explained that because the insured “had made a clear demand for payment of defense and indemnity costs with respect to each of the four sites and because Aetna disputed those demands,” there was a controversy sufficient to invoke the jurisdiction of the court. Id. at 711. Critically, coverage flowed from the insured's actions as to those sites, which was determinable on the facts presented. Here, again, the facts have not been fully presented, and the court cannot make a determination that there are no claims relating to the alleged sexual abuse by Yogi Bhajan that would be covered by the policies.
Notably, defendant is not seeking a declaratory judgment that is limited to the individuals whose names plaintiffs provided to defendant when it requested coverage but seeks a declaratory judgment with respect to “any of the unlitigated claims related to the alleged abuse by Yogi Bhajan.”
Upon a finding that there is no jurisdiction, the court need not proceed to an analysis of the Brillhart and Dizol factors. Nevertheless, these factors provide an independent basis for denying defendant's motion. Defendant suggests that the declaratory judgment it seeks would resolve whether the policies afford coverage for “claims rooted in allegations of sexual abuse by Yogi Bhajan.” Reply 5, ECF 48. But, as plaintiffs contend, the declaratory judgment would not necessarily resolve other lawsuits and creates the risk of duplicative litigation; courts would still need to determine whether the claims are “related to” sexual abuse by Yogi Bhajan, whether the claimants allege any other misconduct that is potentially covered by the polices, the alleged timing of the misconduct and/or injuries, and the application of other policy provisions and exclusions specific to those claimants' allegations. Resp. 9, ECF 46. Furthermore, such a declaratory judgment may not bind claimants who have not appeared in this action. See CAMICO Mut. Ins. Co. v. McCoy Foat & Co., CPAs, P.C., No. 3:18-CV-00701-HZ, 2018 WL 4323893, at *3 (D. Or. Sept. 6, 2018) (“And, absent presence in the declaratory judgment case, the third-party claimant would not necessarily be bound by the determination of coverage liability.”); Colony Ins. Co. v. Vantaggio Farming Corp., No. 117CV00714LJOSKO, 2017 WL 3478998, at *4 (E.D. Cal. Aug. 14, 2017) (explaining that an injured third party's claim may not be bound by a declaratory judgment between an insurer and insured because, due to a disparity in the parties, res judicata might not apply); Essex Ins. Co. v. Westerly Granite Co., No. CA 14-241 ML, 2014 WL 4996693, at *3 (D.R.I. Oct. 7, 2014) (“Furthermore, any ruling interpreting the policy would not be binding on the Moving Defendants if they are not parties to the proceeding.”).
In sum, the court lacks jurisdiction to render the declaratory judgment that defendant seeks, and such a declaration would not necessarily resolve other claims related to sexual abuse by Yogi Bhajan. For these reasons, defendant's motion to amend to the counterclaim to include “any of the unlitigated claims related to the alleged abuse by Yogi Bhajan” is futile under Rule 15.
RECOMMENDATIONS
Defendant's motion for leave to amend its answer (ECF 43) should be DENIED as to the request for declaratory judgment on “any of the unlitigated claims related to the alleged abuse by Yogi Bhajan,” and GRANTED as to the other unopposed amendments defendant seeks.
SCHEDULING ORDER
These Findings and Recommendations will be referred to a district judge. Objections, if any, are due Wednesday, August 02, 2023. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.
NOTICE
These Findings and Recommendations are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.