Summary
In 909 Geary Street, LLC v. Admiral Insurance Company, 2002 WL 253946 (N.D. Cal. Feb. 8, 2002), and Perini Corporation v. Orion Insurance Company, 331 F. Supp. 453 (E.D. Cal. 1971), the courts enforced "service of suit" clauses in insurance policies which allowed the plaintiff insureds to select the forum for litigation.
Summary of this case from Atmel Corp. v. St. Paul Fire & MarineOpinion
No. C 01-4374 JL
February 8, 2002
ORDER GRANTING PLAINTIFF'S MOTION FOR REMAND TO STATE COURT AND ORDER DENYING PLAINTIFF'S MOTION FOR FEES
INTRODUCTION
The motion of 909 Geary Street, LLC, ("Plaintiff") for remand was heard on January 30, 2002. Alexander Berline appeared on behalf of Plaintiff and John Walsh appeared on behalf of Admiral Insurance Co. ("Defendant").
Having carefully reviewed the parties' papers and considered the arguments of counsel and the relevant legal authority, it is hereby ordered that Plaintiff's motion for remand be GRANTED, and Plaintiff's motion for fees and costs be DENIED.
FACTUAL and PROCEDURAL BACKGROUND
The present case stems from an insurance dispute between the insured (Plaintiff) and the insurer (Defendant). Plaintiff owned and operated a hotel, for which it purchased a commercial general liability insurance policy from Defendant on January 20, 1999. On February 9, 2000, an action was filed against plaintiff in San Francisco Superior Court by various claimants to recover damages as a result of a fire at the hotel. In a letter dated July 7, 2000, Defendant agreed to defend Plaintiff. Trial was set for November 13, 2001.
In a letter dated September 10, 2001, Defendant rescinded the policy. On October 18, 2001, Plaintiff filed this action against Defendant for declaratory relief and bad faith rescission in San Francisco Superior Court. Defendant removed the matter to this court on November 21, 2001. Plaintiff moved for remand and attorney's fees and costs on December 21, 2001. Both parties have consented to the jurisdiction of the court as required by 28 U.S.C. § 636(c).
LEGAL ARGUMENT Plaintiff's Motion for Remand and Attorney's Fees and Costs
Plaintiff contends the service of suit clause in the insurance policy issued by the Defendant effectively waives Defendant's right to seek removal. Monticelli v. Homestead Ins. Co., 1997 U.S. Dist. Lexis 1802 (N.D.Cal. 1997).
Plaintiff alleges the improper removal caused it, as the insured, to incur additional and unnecessary attorney's fees and costs. Plaintiff argues that an award of fees is proper under 28 U.S.C. § 1447(c). Morris v. Bridgestone/Firestone, Inc., 985 F.2d 238 (6th Cir. 1993). Alternatively, Plaintiff invites the court to order sanctions under FRCP 11. McKinney v. Bd. of Tr. of Mayland Cmty. Coll., 955 F.2d 924, 928 (4th Cir. 1992).
Defendant Claims Removal was Proper
Defendant claims Plaintiff's concealment of material information, such as prior crimes, fires, and other illegal activities occurring on the insured property, fraudulently induced defendant to issue this policy. Therefore, the policy was properly rescinded on the basis of fraud, and its rescission renders the policy, including the service of suit clause, wholly unenforceable. Imperial Cas. Indem. Co. v. Sogomonian, 198 Cal.App.3d 169 (1988). Since the service of suit clause was void, Defendant's removal was proper.
Defendant argues that Plaintiff's request for fees should be denied because pursuant to 28 U.S.C. § 1447(c), Plaintiff has failed to allege a procedural defect or lack of subject matter jurisdiction in its remand motion. Ferrari, Alvarez, Olsen Ottoboni v. The Home Ins. Co., 940 F.2d 550 (9th Cir. 1991).
LEGAL ANALYSIS
Removal was Wrong as a Matter of Law
The issue before this court is whether removal was proper. Generally, both parties are entitled to their choice of forum, unless that right is waived. By including a service of suit clause in the insurance policy, Defendant effectively waived any right to seek removal. See, Monticelli v. Homestead Ins. Co., 1997 U.S. Dist. Lexis 1802 (N.D.Cal. 1997). Thus the service of suit clause, as agreed upon by the parties upon entering into the contract operates as a waiver, thereby making Defendant's removal wrong as a matter of law. See, Balcorta v. Twentieth Century-Fox Corp., 208 F.3d 1102 (9th Cir. 2000). The Ninth Circuit in Balcorta held that defendant's removal was improper as a matter of law because the defendant violated the well-pleaded complaint rule. Where removal is wrong as a matter of law, the court must remand the action to state court. Id. Defendant waived its right to seek removal by including the service of suit clause in the policy.
Contrary to Defendant's position, the decision to remand is not a decision on the substantive merits of the case. See, Perini Corp. v. Orion Ins. Co., 331 F. Supp. 453, 457 (E.D.Cal. 1971). Although a significant issue in the case is whether Defendant properly rescinded the policy, the issue before this court is the propriety of removal. The substantive merits of Defendant's rescission is not before this court. Following Defendant's rationale, an insurer could unilaterally rescind its policy to avoid compliance each time it deems a clause unfavorable to its position.
Defendant relies on Farmland Indus., Inc. v. Frazier-Parrott Commodities, Inc., 806 F.2d 848 (8th Cir. 1987), in which the court did not enforce a forum selection clause after finding the contract was "tainted with fraud." However, the Eighth Circuit further noted that its refusal to enforce the clause turned on the broad scope of the contract. The suit brought by Farmland alleged a scheme of fraud that extended beyond the parties bound by the contract. Moreover, the district court believed that where a contract created a fiduciary relationship between the parties, it would be grossly unfair to the defrauded party to be forced to comply with the forum selection clause.
Here, the contract between the parties was an insurance policy, which did not create a fiduciary relationship. Furthermore, the only parties in this action are those bound by the insurance policy. There are no other parties involved in this action which are outside the scope of the policy. Unlike the situation in Farmland, the application of the service of suit clause must be considered in light of remand. Remand was not an issue before the district court in Farmland. For these reasons, this court declines to follow the decision in Farmland.
Although Defendant makes a persuasive argument to justify its rescission of Plaintiff's policy, it fails to recognize that the issue for this court is solely whether removal was proper. Defendant's authority for denial of remand is unpersuasive.
Fees are Denied
Even though this case has been remanded, this court retains jurisdiction over an award of fees because the determination of whether to award attorney's fees is a collateral matter. See, Moore v. Permanente Med. Group, Inc., 981 F.2d 443, 445 (9th Cir. 1992). Where removal is wrong as a matter of law, it is within this court's discretion to award fees. See, Balcorta at 1106. However, this court declines to award attorney's fees and costs to Plaintiff because remand is ordered pursuant to the service of suit provision rather than 28 U.S.C. § 1447(c). Additionally, Plaintiff's request for sanctions pursuant to Rule 11 is denied because Defendant's removal was not intended to harass or cause unnecessary costs to Plaintiff. Therefore, Defendant need not be penalized for its removal.
CONCLUSION
The issue before this court is whether Defendant's removal was proper, not the propriety of Defendant's rescission. Remanding this case does not operate as a determination of the substantive merits. The rescission issue is for the state court. Here, Defendant drafted the policy including the service of suit provision, and now seeks to remove after agreeing to submit to any jurisdiction selected by the insured. As the case law supports, the service of suit provision here waives Defendant's right to removal. This action is remanded to state court because removal was wrong as a matter of law. Plaintiff's request for fees and costs is denied.