Opinion
For Catlin Specialty Insurance Company, Plaintiff: David B Parker, Mark A Graf, LEAD ATTORNEYS, Parker Shumaker Mills LLP, Los Angeles, CA.
For National Union Fire Insurance Co of Pittsburgh PA, Defendant, Counter Defendant: Michael J Hartley, LEAD ATTORNEY, Lee Jeffrey Rosenberg, Baute Crochetiere & Gilford LLP, Los Angeles, CA.
ORDER RE PENDING MOTIONS FOR SUMMARY JUDGMENT AND JOINDER
Fernando M. Olguin, United States District Judge.
Having reviewed and considered the briefing filed with respect to the parties' motions for partial summary judgment and summary judgment as well as the Motion to Join Necessary Parties, the court concludes that oral argument is not necessary to resolve the motions. See Fed.R.Civ.P. 78; Local Rule 7-15; Willis v. Pac. Mar. Ass'n, 244 F.3d 675, 684 n. 2 (9th Cir. 2001).
BACKGROUND
This is an action for declaratory relief by an excess directors' and officers' liability insurer, Catlin Specialty Insurance Company (" Catlin" or " plaintiff"), against a primary directors' and officers' liability insurer, National Union Fire Insurance Co. of Pittsburgh, PA (" National Union" or " defendant"), both of which provide coverage to Richard Meruelo (" Meruelo") and John Maddux (" Maddux") (collectively, the " insureds"). The insureds are former third-party defendants sued by the Becker Entity defendants (" Becker Entities"), and Maddux is also a former defendant, in an underlying liability action pending before this court entitled, Hous. Auth. of the City of Los Angeles v. PCC Technical Indus., Inc., et al., Case No. CV 11-1626 (" HACLA Action"). The HACLA Action stems from environmental contamination involving a 21.1-acre property located at 9901 S. Alameda Street in the City of Los Angeles (the " Site"). (See Evidentiary Appendix (" Evid. App'x") Vol. 4, Exhibit (" Exh.") 30 at 1033). HACLA, the current owner of the Site, (see id.), filed the action against numerous defendants under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (" CERCLA"), 42 U.S.C. § § 9601, et seq. and other California causes of action. (See id. at 1037-46).
The Becker Entities include Shama, a general partnership (" Shama GP"), Shama LLC, and Becker Bros. Steel Supply Co (" Becker Steel"). (See Motion for Determination of Good Faith Settlement and Barring of Claims (" Becker Settlement Motion") (Dkt. No. 547, in Hous. Auth. of the City of Los Angeles v. PCC Technical Indus., Inc., et al., Case No. CV 11-1626) at 1).
In August 2014, the court determined that it " lacks supplemental jurisdiction and/or that it will decline supplemental jurisdiction" with respect to the claims asserted against Meruelo and Maddux in the HACLA Action and dismissed the claims against them without prejudice and without leave to amend. (See HACLA Action, Court's Order of August 18, 2014, at 19). Two additional components of the underlying litigation, both relevant to the instant action, occurred as a result of the court's dismissal. First, HACLA named Maddux as a defendant in a suit in state court (" HACLA State Court Action") asserting the claim that this court dismissed. (See Evid. App'x Vol. 6, Exh. 51 at 1428-1429). Second, after Meruelo was dismissed from the HACLA Action, the Becker Entities filed the Becker Settlement Motion for approval of a settlement they purportedly reached with Meruelo before this court dismissed their claims against him. (See Becker Settlement Motion at 1). Meruelo opposed the Becker Settlement Motion, and the court ultimately denied it. (See HACLA Action, Court's Order of February 17, 2015 (Dkt. No. 773) at 17).
The dispute between Catlin and National Union arises from the fact that: (1) National Union declined to advance defense costs to the insureds for the claims asserted against them in the HACLA Action, so Catlin has been advancing defense costs since April 2013; and (2) Catlin has been advancing defense costs incurred by Maddux in defending against the HACLA State Court Action since October 2013. (See Parties' Joint Memorandum of Points and Authorities in Support of their Motions for Partial Summary Judgment/Summary Judgment (" Joint Br.") (Dkt. No. 46-1) at 14-15).
Catlin moves for partial summary judgment on two of six issues it seeks to have resolved in this case. (See Joint Br. at 2). Specifically, it seeks a declaration that: (1) " National Union is obligated under its policy to advance [d]efense [c]osts incurred by Meruelo and Maddux in defending against the claims alleged against them . . .; and (2) the National Union Policy provides primary coverage to Meruelo and Maddox for the [d]efense [c]osts . . . and the Catlin Policy provides only excess coverage for such . . . [c]osts if at all." (Id.). National Union moves for partial summary judgment on the same issues. (See id. at 4). It also seeks summary judgment on all of Catlin's complaint and on its own counterclaim. (See id.). With respect to its counterclaim, National Union argues that the retention provision and various exclusions in the National Union policy preclude coverage in this case. ( See id. at 2 & 3). With respect to Catlin's complaint, National Union asserts that it is " entitled to summary judgment based on Catlin's failure to join Maddux and [Meruelo Maddux Properties, Inc. ('MMPI')], the Named Entity under the National Union Policy.[]" (Id. at 4; see also Motion to Join Necessary Parties (" Joinder Motion") (Dkt. No. 48-1) at 2 (incorrectly identifying MMPI as Maddux-Meruelo Properties, Inc.)).
National Union's motion also seeks summary judgment on its Fourth and Fifth Affirmative Defenses, both of which assert that National Union does not owe defense costs due to the application of certain exclusions. (See Joint Notice of Motions for Partial Summary Judgment/Summary Judgment (Dkt. No. 46) at 2-3).
Although MMPI is now known as EVOQ Properties, Inc. (see Joint Br. at 23; Joinder Motion at 2 n. 1), the court will use " MMPI" for purposes of clarity and consistency.
National Union explains that it asserted its argument regarding joinder of Maddux and MMPI on summary judgment " in part because the deadline for summary judgment motions . . . comes before the deadlines for the parties to stipulate or move to add new parties[.]" (Joint Br. at 17 n. 1). After filing its summary judgment briefing, National Union filed its Joinder Motion, asserting that Maddux and MMPI are necessary parties and should be joined in this action. (See Joinder Motion at 1). Again, it clarified that " [w]hile National Union believes that the Court may fully address the necessary party issues through National Union's motion for summary judgment, National Union files the instant motion in the interest of compliance with the Court's [deadlines]." (Id. at 3). It concurrently lodged a proposed amended counterclaim, seeking to add 9901 Alameda, LLC and Maddux as parties to its counterclaim. (See id.). Catlin opposes the Joinder Motion. (See Opposition to Defendant National Union Fire Insurance Co. of Pittsburgh, PA's Rule 21 Motion to Join Necessary Parties (" Joinder Opp.") (Dkt. No. 59)).
In its briefing, National Union is not entirely clear as to which entity is a necessary party. For example, in the Joint Brief, it argues that MMPI is a necessary party. (See Joint Br. at 15 & 17). In the Joinder Motion, it seeks to add 9901 Alameda, yet again refers to the " necessary and indispensable part[y], MMPI[.]" (See Joinder Motion at 2). In its Joinder Reply brief, National Union explains that it is " seeking to add 9901, not MMPI[.]" (See Reply in Support of Rule 21 Motion to Join Necessary Parties (" Joinder Reply") (Dkt. No. 62) at 8 n. 2). Thus, the court will address the merits of National Union's motion to join 9901 Alameda, not MMPI.
Unless otherwise indicated, the following facts are undisputed. In addition, to the extent the court relies on evidence objected to by the parties, their objections are overruled.
I. MERUELO, MADDUX, AND RELATED CORPORATE ENTITIES.
MMPI is a Delaware corporation. (See Evid. App'x, Vol. 1, Exh. 3 at 114). Meruelo and Maddux are former executive employees of MMPI and an MMPI subsidiary called 9901 Alameda, LLC (" 9901 Alameda"). (See id., Vol. 5, Exh. 46 at 1230). At all times pertinent to this action, 9901 Alameda's sole member and manager was MMP Ventures LLC (" MMPV"), another MMPI subsidiary. (See id., Vol. 1, Exh. 4 at 122). On or about March 26 and 27, 2009, MMPI and 53 of its subsidiaries -- including MMPV but not 9901 Alameda -- filed voluntary petitions for relief under Title 11 of the United States Code (" Chapter 11") in the United States Bankruptcy Court for the Central District of California, thereby commencing 54 separate Chapter 11 cases that were jointly administered under Case No. 1:09-bk-13356-VK (collectively, the " Bankruptcy Case"). (See id., Vol. 1, Exh. 11 at 236-38 & id., Vol. 2, Exh. 12). The court in the Bankruptcy Case confirmed a plan of reorganization on or about June 24, 2011. (See id., Vol. 3, Exh. 21 at 783).
MMPI's Amended and Restated Certificate of Incorporation provides in part: " The Corporation shall, to the fullest extent permitted by the [Delaware General Corporation Law] . . . or any other applicable laws presently or thereafter in effect, indemnify any person who was or is a party . . . to any threatened, pending or completed action . . . by reason of the fact that such person is or was a director or officer of the Corporation . . . against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action[.]" (See Evid. App'x, Vol. 1, Exh. 3 at 117) (further providing that the Corporation may adopt bylaws or enter into agreements providing for indemnification greater or different than that allowed by the Certificate of Incorporation or Delaware law). The 9901 Alameda Operating Agreement similarly provides that " the LLC shall indemnify [MMPV], any officers of the LLC, and their respective directors [and] officers . . . against any losses, liabilities, damages or expenses . . . to which any of such Persons may directly or indirectly become subject in connection with the LLC[, ] . . . but only to the extent that such Person did not engage in fraud." (Id., Exh. 5 at 127).
II. THE NATIONAL UNION POLICY.
The National Union Executive and Organization Liability Insurance Policy (the " Policy") was issued to MMPI. (See Evid. App'x, Vol. 1, Exh. 1 at 8). For purposes relevant to this action, National Union has treated Meruelo and Maddux as Insured Persons under the Policy. (See id., Vol. 5, Exh. 36 at 1186).
The Policy imposes upon National Union an obligation to advance defense costs. Specifically, it states that National Union " shall advance, excess of any applicable retention amount, covered Defense Costs no later than ninety (90) days after the receipt by the Insurer of such defense bills[, ]" subject to its right to recoup such payments " in the event and to the extent that any such Insured . . . shall not be entitled under this policy to payment of such Loss." (Evid. App'x, Vol. 1, Exh. 1 at 22).
The Policy has a retention of $1 million (see Evid. App'x, Vol. 1, Exh. 1 at 8), specifying that " the insurer shall only be liable for the amount of Loss arising from a Claim which is in excess of the applicable Retention . .., such Retention amounts to be borne by an Organization and/or the Insured Person and remain uninsured, with regard to all Loss other than Non-Indemnifiable Loss." (See id. at 21 & 37). It also contains a Pollution Exclusion, which excludes coverage for claims " alleging, arising out of, based upon or attributable to, directly or indirectly: (I) the . . . discharge, dispersal, release or escape of Pollutants; or (II) any direction or request to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize Pollutants . . . provided, however, that this exclusion shall not apply to Non-Indemnifiable Loss, other than Non-Indemnifiable Loss constituting Cleanup Costs[.]" (See id. at 20). Finally, the Policy contains a Prior Litigation Exclusion, which excludes coverage for claims arising from or based upon " any pending or prior . . . litigation . . . of which an Insured had notice, or alleging or derived from the same or essentially the same facts as alleged in such pending or prior litigation[.]" (See id. at 61).
The Policy defines Non-Indemnifiable Loss as " [l]oss for which an Organization has neither Indemnified nor is permitted or required to Indemnify on Insured Person pursuant to law or contract or the charter, bylaws, [or] operating agreement[.]" (Evid. App'x, Vol. 1, Exh. 1 at 16). " Organization" is defined as " (1) the Named Entity; (2) each Subsidiary; and (3) In the event [of bankruptcy] . . . the resulting debtor-in-possession[.]" (Id. at 17). Finally, the Policy provides that " [i]n the event an Organization refuses or is unable to pay an applicable Retention due to Financial Insolvency, then the Insurer shall commence advancing Loss within the Retention[.]" (Id. at 48).
III. RELEVANT LITIGATION AND DENIAL OF COVERAGE.
A. 2004 Litigation.
In June 2004, 9901 Alameda and Shama, LLC entered into an agreement whereby 9901 Alameda agreed to purchase the Site for $25 million from Shama, LLC. (See Evid. App'x, Vol. 1, Exh. 7 at 142). While the parties were in the process of negotiating regarding various contingencies, including a hazardous substances contingency, 9901 Alameda informed Shama, LLC that a number of hazardous materials was discovered during preliminary testing, and that it would need to perform additional testing to approve and waive the environmental contingency. (See id. at 143). In response, Shama, LLC wrote to 9901 Alameda and the escrow company that because 9901 Alameda disapproved the environmental contingency and failed to comply with other conditions, 9901 Alameda's rights to acquire the property had lapsed. (See id.).
9901 Alameda then filed a complaint against Shama, LLC in November 2004 (" the 2004 Litigation") for specific performance, injunctive relief, fraud, declaratory relief, and other contractual remedies. (See Evid. App'x, Vol. 1, Exh. 7, at 144). The trial court entered judgment for Shama, LLC, but the appellate court reversed and remanded the action to the trial court. (See id. at 145). On remand, the trial court ordered Shama, LLC to convey the Site to 9901 Alameda. (See id., Exh. 8, at 156). There is some dispute as to whether 9901 Alameda acquired the Site in February or March of 2008. (See, e.g., id., Vol. 5, Exh. 31 at 1123). Regardless, on March 31, 2008, 9901 Alameda conveyed the Site to HACLA. (See id.). Approximately one year later, the Bankruptcy Case involving MMPI and 53 of its subsidiaries commenced. See supra at § I.
B. HACLA Litigation.
In February 2011, HACLA filed a complaint against numerous former owners and lessees of the property it had purchased from 9901 Alameda. (See Evid. App'x, Vol. 3, Exh. 22). In June 2012, the Becker Entities defendants filed an Amended Third Party Complaint against various parties, including Meruelo and Maddux. (See id., Vol. 4, Exh. 28 at 986). The Becker Entities alleged that Meruelo and Maddux were principals and managing members of 9901 Alameda (see id. at 988), and that they failed to disclose to HACLA test data that revealed substantial environmental pollution at the Site. (See id. at 991).
In October 2013, HACLA filed its Fifth Amended Complaint in the HACLA Action, which included a claim against Maddux and 9901 Alameda for negligent misrepresentation. (See Evid. App'x, Vol. 4, Exh. 30 at 1044-46). Then, as stated previously, the court dismissed the claim for lack of jurisdiction, HACLA filed the HACLA State Court Action against Maddux, and the court denied the Becker Settlement Motion involving Meruelo. (See Background, supra).
C. Handling of Maddux and Meruelo's Claims.
Meruelo and Maddux notified National Union of the Becker Entities' Third Party Complaint in July 2012. (See Evid. App'x, Vol. 5, Exh. 32 & Joint Appendix of Undisputed and Disputed Facts (" Facts App'x") at UF 74). National Union exchanged several letters with counsel for Meruelo and Maddux and with Catlin concerning coverage for the claims (see, e.g., Evid. App'x, Vol. 5, Exhs. 33-39), but ultimately denied coverage of the claims on April 16, 2013. (See id., Exh. 40 at 1203-06). Catlin notified counsel for Meruelo and Maddux that it " maintains that coverage . . . properly is due under the National Union Policy[, ]" but because " National Union has denied coverage . . . and . . . failed to indemnify . .., Catlin will accept coverage[.]" (Id., Exh. 42 at 1214). As a result, Catlin has been advancing defense costs " incurred by Meruelo and Maddux in defending against [the Becker Entities' third-party complaint] since April 2013 and has been advancing [d]efense [c]osts incurred by Maddux in defending against [the HACLA State Court Action] since October 2013." (See Joint Br. at 15). Neither MMPI nor any of its subsidiaries, including MMPV and 9901 Alameda, has paid Meruelo or Maddux or their attorneys for defense costs incurred in the underlying actions. (See Facts App'x at UF 129).
DISCUSSION
National Union asserts that it " is entitled to dismissal of Catlin's Complaint, or alternatively a stay of any summary judgment ruling, pending joinder of Maddux and MMPI as parties or their ratification of Catlin's Complaint." (Joint Br. at 15). It asserts that " [t]his is a threshold issue that should be considered before addressing the substantive coverage issues." (Id.) (emphasis in original). While the court has some doubt as to whether a resolution of the joinder issue is necessary to rule on the merits of the summary judgment motions, the court will, nevertheless, address defendant's Joinder Motion first.
I. JOINDER.
A. Legal Standard.
Federal Rule of Civil Procedure 19 governs joinder of required parties. Fed.R.Civ.P. 19. The rule " provides a three-step process for determining whether the court should dismiss an action for failure to join a purportedly indispensable party." United States v. Bowen, 172 F.3d 682, 688 (9th Cir. 1999). The first step involves determining whether the absent party is necessary:
All subsequent " Rule" references are to the Federal Rules of Civil Procedure unless otherwise noted.
A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if: (A) in that person's absence, the court cannot accord complete relief among existing parties; or (B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may: (i) as a practical matter impair or impede the person's ability to protect the interest; or (ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)(1). Then, " [i]f the absent party is 'necessary, ' the court must determine whether joinder is 'feasible.'" Bowen, 172 F.3d at 688. " Difficulties arise only if joinder cannot be effectuated because the absentee is not subject to service of process, the absentee's joinder will deprive the court of subject-matter jurisdiction, or the absentee makes a valid objection to the court's venue after joinder." Wright & Miller, 7 Fed. Prac. & Proc. Civ., § 1604, 40 (3d ed. 2001). If joinder is not feasible due to such circumstances, the court considers whether " the action should proceed among the existing parties or should be dismissed." Fed.R.Civ.P. 19(b). " There is no precise formula for determining whether a particular nonparty should be joined under Rule 19(a). . . . The determination is heavily influenced by the facts and circumstances of each case." N. Alaska Envtl. Ctr. v. Hodel, 803 F.2d 466, 468 (9th Cir. 1986) (alteration in original).
National Union also refers to Rule 17, which governs capacity to sue and be sued and designations of real parties in interest. See Fed.R.Civ.P. 17. Specifically, it makes various arguments about ratification, which only comes into play when a court contemplates " dismiss[ing] an action for failure to prosecute in the name of the real party in interest[.]" See id. at 17(a)(3).
B. Whether Maddux or 9901 Alameda Must be Joined.
National Union argues that Maddux and 9901 Alameda are required parties under both subsections (A) and (B) of Rule 19(a)(1). With respect to Rule 19(a)(1)(A), National Union asserts that the court " cannot afford complete relief on the [question of whether the Policy retention applies] in the absence of Maddux and 9901 [Alameda], and Rule 19(a)(1)(A) therefore requires that they be joined as parties[.]" (Joinder Reply at 3). National Union relies primarily on E.E.O.C. v. Peabody W. Coal., 610 F.3d 1070 (9th Cir. 2010), cert. denied, 132 S.Ct. 91, 181 L.Ed.2d 21 (2011), in which the Ninth Circuit required joinder to afford complete relief among the parties. In that case, the E.E.O.C. filed suit against Peabody, a coal mine, asserting that its Navajo employment preferences violated Title VII. See E.E.O.C., 610 F.3d at 1075. The employment preferences, however, were contained in provisions of Peabody's lease with the Navajo Nation because the Secretary of the Interior required them. See id. at 1081 (" the Secretary insisted that the disputed employment preference provision be included in the leases . . . and . . . the Secretary is ultimately responsible for its continued inclusion in the leases"). Therefore, if the E.E.O.C. prevailed in the action, Peabody might be obligated to pay damages for having engaged in conduct that was required by the Secretary, but if the Secretary was not made a party, the coal mine would not be able to seek indemnification. See id. As the Ninth Circuit stated, " [i]f the Secretary is not made a party, Peabody may be obliged by the court to disregard the preference provision, while the Secretary would remain free to insist that Peabody honor it, upon pain of losing the leases." Id.
The court is unpersuaded that E.E.O.C. governs in this case. Here, Catlin is not seeking to require National Union to take any action that is required or forbidden by an agreement with some other party. (See, generally, FAC). Instead, it asks the court to determine what the policy requires. That it may favor one interpretation of the Policy does not change the fact that it filed this suit to force National Union's compliance with the Policy. Catlin does not ask the court, the way plaintiff did in E.E.O.C., to impose an obligation inconsistent with the agreement at issue. The instant action simply involves the interpretation of one contract to determine the parties' obligations under the contract; the parties are not asking the court for any relief that will be contrary to the obligation that any party has with another. Accordingly, National Union has not shown that the court is unable to accord complete relief between Catlin and National Union absent joinder of any other parties. See Fed.R.Civ.P. Rule 19(a)(1)(A).
National Union also argues that Maddux and 9901 Alameda are required parties under Rule 19(a)(1)(B) because they both claim an interest relating to the subject of the action and they are so situated that disposing of the case in their absence may impair or impede their ability to protect their interests and may leave National Union subject to a substantial risk of incurring inconsistent obligations. (See Joinder Reply at 3-4).
Under Rule 19(a)(1)(B), " [j]oinder is contingent upon an initial requirement that the absent party claim a legally protected interest relating to the subject matter of the action." Bowen, 172 F.3d at 689 (emphasis in original) (alterations omitted); see also Ward v. Apple, Inc., 791 F.3d 1041, 1051 (9th Cir. 2015) (referring to " Bowen's requirement that [an absent party] claim an interest"); Lopez v. Fed. Nat'l Mortg. Ass'n, 2013 WL 7098634, *6 (C.D. Cal. 2013) (" it is inappropriate for one defendant to attempt to champion the absent party's interests. Stated differently, unless the absent party has actually claimed it has a legally protected interest in the action, she cannot be deemed a necessary party under Rule 19") (internal quotation marks, alteration marks, and citations omitted). Here, although Maddux has not attempted to intervene, he sought the very coverage under the National Union Policy that Catlin seeks to enforce in this suit. (See Evid. App'x, Vol. 5, Exh. 32 at 1143). Maddux submitted a declaration in which he agrees to be bound by the judgment in this action provided that it does not create " a monetary obligation for [him] . . . or defeat[] [his] right to insurance coverage from Catlin for any loss arising from the Action in the event it does not prevail against National Union[.]" (See id., Vol 5, Exh. 48 at 1240). Such actions suggest that Maddux recognizes that his legal interests could be implicated by the instant suit, and that he has sought to protect them. Thus, while he has not sought to intervene, Maddux has manifested a legal interest in the subject matter of the action. See, e.g., Aguinaga v. UBS AG, 2010 WL 5093433, *10 (S.D.N.Y. 2010) (compiling cases) (" Though the non-party need not actively intervene in the present litigation, it must at least manifest some legal claim in the subject matter of the action.").
9901 Alameda, on the other hand, has not asserted any interest in the action. As National Union recognizes, " [t]here is no declaration of ratification from 9901 [Alameda] of any kind." (Joinder Motion at 6). Nor is there one from MMPI. (See Declaration of Lee J. Rosenberg In Support of Defendant National Union Fire Insurance Company of Pittsburgh, PA's Rule 21 Motion to Join Necessary Parties (" Rosenberg Decl.") (Dkt. No. 48-2) at ¶ 10).
National Union asserts that " 9901 has sought coverage for Maddux and Meruelo under the Policy" (see Joinder Reply at 7), yet it does not cite to any evidence in the record to support that assertion. (See, generally, Joinder Motion, Joinder Reply). Further, the court has thoroughly reviewed the record in connection with the parties' cross-motions for partial summary judgment and summary judgment, and it was unable to locate any evidence of 9901 Alameda or MMPI seeking coverage for the insureds under the Policy. (See, generally, Evid. App'x). In short, there is no evidence to support a finding that either 9901 Alameda or MMPI has claimed an interest in this lawsuit. As such, they cannot be necessary parties under Rule 19(a)(1)(B). See, e.g., Varlen Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 2011 WL 3664796, *5 (N.D.Ill. 2011) (" there is no indication that either of the absent [parties] claims any interest in this litigation. Rather, it is National Union that claims an interest in joining those [parties] to this case. Accordingly, Rule 19(a)(1)(B) is inapplicable at the threshold.").
The fact that MMPI is the Named Entity in the Policy does not change this conclusion. National Union cites Nat'l Union Fire Ins. Co. v. Rite Aid of S.C., Inc., 210 F.3d 246 (4th Cir. 2000), for the proposition that courts are required to join the named insured in a suit involving a determination of coverage under the applicable policy. (See Joint Br. at 15). However, in Rite Aid, the named insured had initiated a separate lawsuit regarding the events at issue, and it was clear that it met the preliminary Rule 19(a)(1)(B) requirement of claiming an interest in the suit. See Rite Aid, 210 F.3d at 250. Further, Travelers Indem. Co. v. Household Int'l, Inc., 775 F.Supp. 518 (D. Conn. 1991), is inapposite because the question there was whether a plaintiff, parent insurance company, was a proper plaintiff if its subsidiary issued the insurance contract at issue. The subsidiary had previously filed suit under the policy in another court, and the parent took the position in that litigation that the proper party to bring suit under it was the subsidiary. See id. at 526. Accordingly, the court determined that the subsidiary, not the parent, was the real party in interest in the suit to recover the deductible. See id. at 526-27.
Because Maddux has claimed an interest, the court proceeds to determine whether he is a necessary party: is he so situated that disposing of the action in his absence may: (i) as a practical matter impair or impede his ability to protect his interests; or (ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interests? See Fed.R.Civ.P. 19(a)(1)(B). With respect to his own interests, Maddux has stated that he agrees to be bound by the judgment in this action, provided that it: (a) does not create a monetary obligation for him or any person asserting that a judgment here is enforceable against him under the doctrines of res judicata or collateral estoppel; (b) does not defeat his right to coverage from Catlin in the event Catlin does not prevail; and (c) does not alter his rights and obligations under the Catlin policy. (See Evid. App'x, Vol 5, Exh. 48 at 1240-41).
At the outset, the court notes that this litigation will not alter Maddux's rights and obligations under the Catlin policy, as the Catlin policy is not at issue and the parties did not ask the court to interpret any provision in the Catlin policy. (See, generally, Joint Br.). It also will not defeat his right to coverage from Catlin in the event that Catlin does not prevail against National Union. As Catlin notes, " National Union has failed to explain how the Court's ruling on National Union's duty to advance defense costs could affect Maddux's rights under the Catlin policy, particularly since it is undisputed that Catlin has been advancing his costs of defense since October, 2013." (Id. at 20). Finally, this case will not create a financial obligation for him, as no party seeks any relief against him, and even if a party used a judgment in this action to attempt to recover any money from Maddux, he, as a non-party, would not be bound by res judicata or collateral estoppel. See Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir. 2001) (res judicata applies when there is " (1) an identity of claims, (2) a final judgment on the merits, and (3) identity or privity between parties."); In re Schimmels, 127 F.3d 875, 881 (9th Cir. 1997) (privity requires " designating a person so identified in interest with a party to former litigation that he represents precisely the same right in respect to the subject matter involved."); United States v. Arnett, 327 F.3d 845, 848 (9th Cir.), reinstated at reh'g en banc, 353 F.3d 765 (9th Cir. 2003), cert. denied, 541 U.S. 1091, 124 S.Ct. 2828, 159 L.Ed.2d 256, reh'g denied, 542 U.S. 958, 125 S.Ct. 15, 159 L.Ed.2d 844 (2004) (summarizing collateral estoppel: " when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit.") (citation omitted). Because Maddux's absence will not impact his ability to protect his interests, he is not a required party under Rule 19(a)(1)(B)(i).
This conclusion is further supported by Catlin's statement that " National Union has cited no authority for its premise that it can force Catlin to sue its Insured based on the mere possibility that it may end up with a potential cause of action against him[.]" (See Joinder Opp. at 6).
National Union asserts that Maddux's not being bound by a judgment in this case might increase the risk that it could be subject to inconsistent obligations in the future. See Fed.R.Civ.P. 19(a)(1)(B)(ii). It is possible, for instance, for this court to declare that the $1 million retention in the Policy was not excused, i.e., that Maddux is responsible for such costs. National Union argues that if there is a " judgment declaring that the Retention applies, Maddux . . . would have a $1 million incentive to re-litigate that issue in the hopes of obtaining a competing judgment in [his] favor." (See Joinder Reply at 7). This argument ignores the fact that a decision that the retention applies requires a preliminary determination that such costs are not Non-Indemnifiable Losses. (See Evid. App'x, Vol. 1, Exh. 1 at 37). That determination necessarily depends upon a preliminary determination of its own, i.e., a decision that 9901 Alameda or MMPI is legally and contractually permitted or required to indemnify Maddux by law or contract. (See id. at 16). Thus, a decision finding that the retention is not excused would actually be a decision that 9901 Alameda or MMPI is responsible for the retention. Maddux would have no reason to ask another court to reach a conclusion that would impose an inconsistent obligation upon National Union. If anything, 9901 Alameda or MMPI might have such an incentive, but, as explained above, neither one is a necessary party because neither has satisfied the threshold Rule 19(a)(1)(B) requirement of claiming an interest in this litigation.
National Union recognizes as much when it says that " 9901 [Alameda] therefore would have the same incentive to re-litigate the Retention issue if National Union prevails, on behalf of Maddux and itself, in the hopes of obtaining a competing judgment that imposes a conflicting obligation on National Union to advance defense costs within the $1 million Retention." (Joinder Reply at 7).
National Union also asserts that its Policy " provides runoff coverage through July 31, 2017 . .., so that the same issues may come up again in connection with a different underlying matter, and a judgment in this case would not have collateral estoppel effect." (Joinder Motion at 6). As Catlin points out, however, this is nothing more than speculation that " sometime in the future, some other claimant may assert some different claim against Maddux, Meruelo, or 9901 [Alameda] that could raise the same issues, that new coverage litigation may ensue, that a judgment in this case would not have collateral estoppel effect in the hypothetical new coverage suit and that Maddux . . . therefore need[s] to be joined. Th[is] argument is nothing more than conjecture[.]" (Joinder Opp. at 8). " The key is whether the possibility of being subject to multiple obligations is real; an unsubstantiated or speculative risk will not satisfy the Rule 19(a) criteria." 7 Fed. Prac. & Proc. Civ. § 1604 at 64. Accordingly, National Union has failed to show that Maddux is a necessary party under Rule 19(a)(1)(B).
In short, the court denies National Union's Joinder Motion and denies National Union's motion for summary judgment -- or for a stay of ruling for summary judgment or dismissal (see Joint Br. at 4 & 15) -- on the basis of Catlin's failure to join Maddux and 9901 Alameda.
C. Whether National Union Can Amend its Counterclaim.
Finally, " [b]eyond Rule 19, " National Union asserts that it " is entitled to join Maddux and 9901 [Alameda] as counter-defendants to National Union's Counterclaim under Rule 21." (See Joinder Reply at 8). It explains that its counterclaim " seeks mirror-image declaratory relief to Catlin's, making Maddux and 9901 [Alameda] proper counter-defendants for the same reasons that they are proper involuntary plaintiffs." (Id.). Given that the court has already determined that they are not necessary parties, it now weighs the merits of National Union's effort to amend its counterclaim.
Rule 21 states that " [o]n motion or on its own, the court may at any time, on just terms, add or drop a party." Fed.R.Civ.P. 21. Rule 15 governs the amendment of pleadings, and states that after a responsive pleading has been filed, " a party may amend its pleading only with the opposing party's written consent or the court's leave[, and t]he court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a). " The factors considered in determining whether a motion for leave to amend should be granted are undue delay, bad faith, prejudice to the opposing party, whether the party has previously amended his pleadings, and futility of amendment." Brink v. First Credit Res., 57 F.Supp.2d 848, 852 (D. Ariz. 1999) (citing Bonin v. Calderon, 59 F.3d 815 (9th Cir. 1995), cert. denied, 516 U.S. 1051, 116 S.Ct. 718, 133 L.Ed.2d 671 (1996)).
Catlin argues that National Union has failed to establish grounds for amending its counterclaim because it " has known for more than a year of its purported claims against Maddux [and] 9901 [Alameda] . . . because it raised the same arguments in its first motion to dismiss filed on October 29, 2013[.]" (See Joinder Opp. at 9). Further, " [i]t necessarily knew of them when it filed its answer and counter-claim on October 14, 2014 . .., yet chose not to include them." (Id.). Catlin appears to be correct that National Union has known of its purported claims against these parties for quite some time, but the court is not persuaded that the delay in seeking to amend the its counterclaim was unreasonable. The court's Case Management Order states that any stipulation or motion to amend as to any claims, defenses, and/or parties shall be filed no later than March 3, 2014. (See Court's Order of January 6, 2014 (Dkt. No. 29) at 8). Because the court had not yet ruled on National Union's motion to dismiss -- in which it argued that the case must be dismissed for failure to join the additional parties -- the court extended the deadline to 30 days after the court issued its ruling on the motion to dismiss. (See Court's Order of March 3, 2014 (Dkt. No. 36)). The court denied the motion to dismiss without prejudice on September 29, 2014, (see Court's Order of September 29, 2014, at 2 (Dkt. No. 44)), National Union answered and filed its counterclaim on October 14, 2014 (see Answer to First Amended Complaint and Counterclaim (Dkt. No. 45)), and then parties filed their motions for summary judgment four days later. Then, on October 29, 2014, the day of its deadline, National Union filed its Joinder Motion. (See Joinder Motion). Given the timing of the court's orders and the parties' other motions, National Union's actions were not unreasonable. As Catlin suggests, it may have been a tactical decision to file two motions to dismiss based on Catlin's failure to join necessary parties rather than answer and file a counterclaim naming those parties, (see Joinder Opp. at 9-10), but given the schedule set by the court and that Catlin was aware of these arguments all along, National Union's actions were not unreasonable or prejudicial to Catlin.
The court notes, however, Catlin's concern that it continues to advance defense costs incurred by Maddux (and Meruelo) pending resolution of the coverage issues raised in this litigation. National Union's waiting until the very last day to amend its counterclaim, while not entirely unreasonable, implicates Catlin's financial obligations and certainly does not serve the parties' interest in the efficient completion of litigation.
Upon review of the Proposed Amended Counterclaim (see Rosenberg Decl., Exh. 1 (" Proposed Amended Counterclaim"), however, the court is not certain it would have jurisdiction over the claim. It alleges that 9901 Alameda is a California LLC, and that its sole member is EVOQ Properties, Inc. (See id. at ¶ 5). However, the parties agreed in their Facts App'x that 9901 Alameda's sole member is MMPV, another subsidiary of MMPI. (See Facts App'x at UF No. 7). Because LLCs are citizens of every state of which their owners or members are citizens, see Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006), and the asserted basis of the court's jurisdiction over the Proposed Amended Counterclaim is diversity jurisdiction, the court will not grant National Union leave to amend unless and until the court is certain it will have jurisdiction over the claim. Additionally, many of the " Necessary & Indispensable Party Allegations" (see Proposed Amended Counterclaim at ¶ ¶ 11-15) are now contrary to the court's order above. In short, leave to amend National Union's counterclaim is denied. In any event, as explained below, the court's findings with respect to the parties' remaining arguments regarding summary judgment render National Union's request to amend moot.
II. SUMMARY JUDGMENT.
A. Legal Standard.
Rule 56(a) of the Federal Rules of Civil Procedure authorizes the granting of 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." The standard for granting a motion for summary judgment is essentially the same as for granting a directed verdict. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Judgment must be entered " if, under the governing law, there can be but one reasonable conclusion as to the verdict." Id.
The moving party has the initial burden of identifying relevant portions of the record that demonstrate the absence of a fact or facts necessary for one or more essential elements of each cause of action upon which the moving party seeks judgment. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). If the moving party fails to carry its initial burden of production, " the nonmoving party has no obligation to produce anything." Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102-03 (9th Cir. 2000).
If the moving party has sustained its burden, the burden then shifts to the nonmovant to identify specific facts, drawn from materials in the file, that demonstrate that there is a dispute as to material facts on the elements that the moving party has contested. See Celotex, 477 U.S. at 324, 106 S.Ct. at 2553; Anderson, 477 U.S. at 256, 106 S.Ct. at 2514 (A party opposing a properly supported motion for summary judgment " must set forth specific facts showing that there is a genuine issue for trial."). A factual dispute is material only if it affects the outcome of the litigation and requires a trial to resolve the parties' differing versions of the truth. SEC v. Seaboard Corp., 677 F.2d 1301, 1306 (9th Cir. 1982). Summary judgment must be granted for the moving party if the nonmoving party " fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. at 2552; see Anderson, 477 U.S. at 252, 106 S.Ct. at 2512 (parties bear the same substantive burden of proof as would apply at a trial on the merits).
" In determining any motion for summary judgment or partial summary judgment, the Court may assume that the material facts as claimed and adequately supported by the moving party are admitted to exist without controversy except to the extent that such material facts are (a) included in the " Statement of Genuine Disputes" and (b) controverted by declaration or other written evidence filed in opposition to the motion." Local Rule 56-3.
In determining whether a triable issue of material fact exists, the evidence must be considered in the light most favorable to the nonmoving party. See Barlow v. Ground, 943 F.2d 1132, 1134 (9th Cir. 1991), cert. denied, 505 U.S. 1206, 112 S.Ct. 2995, 120 L.Ed.2d 872 (1992). However, summary judgment cannot be avoided by relying solely on " conclusory allegations [in] an affidavit." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 3188, 111 L.Ed.2d 695 (1990); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (more than a " metaphysical doubt" is required to establish a genuine issue of material fact). " The mere existence of a scintilla of evidence in support of the plaintiff's position" is insufficient to survive summary judgment; " there must be evidence on which the [fact finder] could reasonably find for the plaintiff." Anderson, 477 U.S. at 252, 106 S.Ct. at 2512.
With these standards in mind, the court now turns to the remainder of the arguments raised by the parties.
B. The Parties' Motions .
Referring to the defense costs clause in the Policy, which states that National Union " shall advance" such costs in " excess of any applicable retention amount" within 90 days of receiving bills from the insureds (see Evid. App'x, Vol. 1, Exh. 1 at 22), Catlin asserts that National Union is obligated to advance Maddux and Meruelo's costs unless and until it establishes with certainty that the $1 million retention applies, or that all defense costs are excluded from coverage. (See Joint Br. at 23). It asserts, however, that while the underlying litigation is pending, National Union is unable to establish either coverage defense. (See id.). National Union disagrees, arguing that " an insured bears the burden of establishing that an applicable retention has been exhausted or excused, and if it does not carry that burden, the insurer's obligations under the applicable policy are not triggered." (Id. at 30). It further argues that even if the retention is exhausted or excused, the Pollution and Prior Litigation exclusions preclude coverage for Maddux and Meruelo in the underlying litigation. (See id. at 36-40 & 44-47).
1. The Retention Provision .
Endorsement 3 to the Policy provides that National Union " shall only be liable for the amount of Loss arising from a Claim which is in excess of the applicable Retention amounts[.]" (Evid. App'x, Vol. 1, Exh. 1 at 37). It also states that the retention provision applies only to " Loss other than Non-Indemnifiable Loss." (Id.). Non-Indemnifiable Loss has two components, i.e., it is loss for which (1) " an Organization has neither indemnified[, ]" (2) " nor is permitted or required to indemnify" pursuant to law, contract, or bylaws. (See id. at 16).
It is undisputed that " [n]either MMPI, nor any of its subsidiaries, including MMPV and 9901 [Alameda], has paid Meruelo or Maddux or their attorneys for Defense Costs[.]" (Facts App'x at UF 129) (emphasis added). However, in July 2013, MMPI issued consolidated financial statements for the calendar years ending in 2011 and 2012, stating that " Messrs. Maddux and Meruelo have both sought indemnity from the Company for any liability arising from [the HACLA Action] and the Company is currently indemnifying them." (Evid. App'x, Vol. 6, Exh. 49 at 1406). In the Joint Brief, neither party suggests that this statement was made in error; indeed, National Union refers to it as unsurprising, given the indemnification requirements of Delaware law. (See Joint Br. at 33).
It is unclear when Catlin learned of the indemnification, however. In a letter dated April 26, 2013, Catlin stated that it " understands that MMPI has refused to indemnify Meruelo and Maddux for the [HACLA Action]." (See Evid. App'x, Vol. 5, Exh. 42 at 1214). Regardless, the court understands from the Joint Brief and from Catlin's careful wording (i.e., " it is undisputed that neither [entity] has indemnified [the insureds] for any [d]efense[c]osts" (Joint Br. at 23) (emphasis added) as opposed to asserting that neither has indemnified the insureds at all) that the parties acknowledge that MMPI and/or 9901 Alameda have, to some extent, indemnified Maddux and Meruelo.
However, the scope of the indemnification is not entirely clear from the record. MMPI's Amended and Restated Certificate of Incorporation states that the company shall indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law (" DGCL"), and it also permits the company to assume additional indemnity obligations by agreement or in its bylaws. (See Evid. App'x, Vol. 1, Exh. 3 at 117). Section 145(a) of the DGCL provides that a corporation may indemnify a person made a party to an action " by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise." 8 Del. C. § 145(a). It further provides that directors and officers shall be indemnified against expenses (including attorney's fees) if they are successful on the merits in defense of an action. See id. at § 145(c).
There appear to be no agreements or obligations in the record that expand MMPI's responsibilities beyond the scope of the Delaware Corporation Law. (See, generally, Evid. App'x). In January 2007, MMPI entered into an Indemnification Agreement with Maddux in which it agreed to indemnify him to the fullest extent permitted under the Delaware General Corporation Law and its Certificate of Incorporation. (See Evid. App'x, Vol. 2, Exh. 14 at 404). However, the record contains no information regarding a corresponding agreement with Meruelo, nor does there appear to be any agreement related to the HACLA Action.
On one hand, there is no evidence that MMPI has agreed to that which it is legally obligated to provide, but on the other, there is no evidence that it did not agree to indemnify to a greater extent than obligated by law. In other words, despite MMPI's " indemnification" of Maddux and Meruelo, and despite the requirements of Delaware law, the actual scope of the indemnification is entirely unclear. What is clear, however, is that the defense costs are not being advanced. (See Facts App'x at UF 129). But the court is unable to determine whether Maddux and Meruelo are indemnified for defense costs, and if they are, the court is further unable to determine, for example, whether they will be paid upon final judgment, upon judgment in their favor, or only if there is no finding of fraud or bad faith. Thus, the court cannot determine conclusively whether the first requirement of Non-Indemnifiable Loss has been met. (See Evid. App'x, Vol 1, Exh. 1 at 16, defining Non-Indemnifiable Loss as one for which (1) " an Organization has neither indemnified[, ]" (2) " nor is permitted or required to indemnify" pursuant to law, contract, or bylaws).
Further, although the financial statements do not indicate the precise date that they were prepared, the statement regarding MMPI's indemnification was likely made in early 2013, (see Evid. App'x, Vol. 6, Exh. 49 at 1370 (independent auditors reviewed the statements in July 2013)), prior to this court's dismissal of HACLA's state law claims, (see HACLA Action, Court's Order of August 18, 2014), and prior to the initiation of the HACLA State Court Action against Maddux and 9901 Alameda. (See Evid. App'x, Vol. 6, Exh. 51). Since that litigation is ongoing and was initiated after MMPI indicated in its financial statements that it indemnified Maddux and Meruelo, it is likely that the scope and extent of the indemnification has changed.
In short, while it is undisputed that no defense costs have been advanced to Meruelo or Maddux, it is disputed as to whether their defense costs are being indemnified. Because the retention applies to loss other than Non-Indemnifiable Loss and Non-Indemnifiable Loss must be loss " for which an Organization has [not] indemnified[, ]" the court cannot determine on the record before it whether the retention provision is excused.
For the same reason, the court is unable to determine the applicability of the Pollution Exclusion. The Pollution Exclusion precludes coverage for defense costs in a claim against an insured " alleging, arising out of, based upon or attributable to, directly or indirectly" the actual or alleged discharge of pollutants and any direction to request to test for or monitor pollutants. (See Evid. App'x, Vol. 1, Exh. 1 at 20). The exclusion contains a carve-out, however, stating that it " shall not apply to Non-Indemnifiable Loss, other than Non-Indemnifiable Loss constituting Cleanup Costs[.]" (Id.).
In any event, even if the court determined that the retention provision was inapplicable, and even if it determined that the Pollution Exclusion did not exclude Meruelo and Maddux's defense costs from coverage, Catlin would still need to overcome National Union's Prior Litigation Exclusion defense. As explained below, however, that exclusion precludes coverage of defense costs in the underlying litigation.
2. The Prior Litigation Exclusion .
The Policy states that National Union " shall not be liable to make any payment for Loss in connection with" a claim " alleging, arising out of, based upon or attributable to, as of the Continuity Date, any pending or prior . . . litigation . . . of which an Insured had notice, or alleging or derived from the same or essentially the same facts as alleged in such pending or prior litigation[.]" (See Evid. App'x, Vol. 1, Exh. 1 at 18 & 61). National Union argues that this exclusion precludes coverage for the underlying actions because of the 2004 Litigation between 9901 Alameda and Shama, LLC. (See Joint Br. at 45). Catlin, on the other hand, asserts that " National Union's position results from an exceptionally broad interpretation of the exclusion that is wholly unsupported by established law that requires exclusions to be construed narrowly." (Id. at 47).
Here, the 2004 Litigation was pending as of the Policy's January 25, 2007 Continuity Date. (See Evid. App'x, Vol. 1, Exh. 1 at 9 (Continuity Date at item 5(a)) & Exh. 8 at 147 (Statement of Decision in 2008)). The question, then, is whether it satisfies either prong of the exception, i.e., (1) whether the underlying actions allege, arise out of, are based on or are attributable to the 2004 Litigation; or (2) whether the underlying actions allege or are derived from the same or essentially the same facts as alleged in the 2004 Litigation.
With respect to the first prong, " 'based on' has the same effect as 'arising out of.' 'Arising out of' is a broad concept requiring only a 'slight connection' or an 'incidental relationship' between the [prior litigation] and the excluded [claim]. Such language requires the court to examine the conduct underlying the lawsuit, instead of the legal theories attached to the conduct." Century Transit Sys., Inc. v. Am. Empire Surplus Lines Co., 42 Cal.App.4th 121, 127 n. 4, 49 Cal.Rptr.2d 567 (1996) (internal quotation marks, alteration marks, and citations omitted). Accordingly, despite the differences in the claims alleged (i.e., the existence and performance of a contract, breach, and the right to specific performance in the 2004 Litigation, and negligent misrepresentation regarding documents describing the site's environmental condition in the later actions), it cannot be denied that the cases bear the required " slight connection" and " incidental relationship" that California law requires. See id. The 2004 Litigation and the underlying actions are predicated on 9901 Alameda's prior ownership of the Site and its -- and its officers -- undertaking of the testing that revealed substantial contamination. In the HACLA Action, these facts were the basis for the Becker Entities' and HACLA's indemnity and contribution claims against Meruelo and Maddux. (See Evid. App'x, Vol. 4, Exh. 28 at 990 & id., Exh. 30 at 1038-39 & 44-46). In the HACLA State Court Action, these facts are the basis for HACLA's negligent misrepresentation claims. (See id., Vol. 6, Exh. 51 at 1428-29).
Moreover, the 2004 Litigation is specifically alleged in a prior version of the Becker Entities' third-party complaint. (See id., Vol. 4, Exh. 27 at 968) (alleging that " [w]hen Shama LLC attempted to cancel the transaction, 9901 Alameda LLC sued to force it to sell. The Court ultimately determined that 9901 Alameda LLC did not disapprove the environmental contingency and therefore, Shama LLC was required to sell the property to 9901 Alameda LLC."). These commonalities make clear that the 2004 Litigation and the litigation at issue here feature the same factual allegations: that 9901 Alameda and its officers performed a site investigation and learned of the presence of various hazardous substances, and that 9901 Alameda extended the due diligence period prior to its purchase of the Site so that it could complete additional investigation. While " [e]xclusionary clauses are interpreted narrowly, whereas clauses identifying coverage are interpreted broadly, " A. Mut. Ins. Co. v. Ruiz, 123 Cal.App.4th 1197, 1207-08, 20 Cal.Rptr.3d 628 (2004), the court is persuaded that the connection between the 2004 Litigation and the HACLA actions is sufficient for application of the prior litigation exclusion. See, e.g., Hilb Rogal & Hobbs Ins. Servs. of Cal., Inc. v. Indian Harbor Ins. Co., 379 Fed.Appx. 609, 610 (9th Cir. 2010) (finding that even though the two actions in question raised different legal claims and issues, they had the requisite connection because " both the prior litigation and the current claim feature the same failure to obtain workers' compensation coverage.") (emphasis in original). Accordingly, National Union's motion for summary judgment on the basis of the prior litigation exclusion is granted.
Catlin argues that the cases " arise from entirely different facts constituting the alleged invasion of different primary rights held by different persons or entities." (See Joint Br. at 48). While its statement regarding primary rights may be true, California law is clear that it is the " conduct underlying the lawsuit, instead of the legal theories attached to the conduct" that matters. See Century Transit, 42 Cal.App.4th at 127 n. 4.
Grant of summary judgment on the prior litigation exclusion disposes of this case. Catlin's FAC requests a declaration that National Union is obligated to provide coverage for Maddux and Meruelo pursuant to the Policy (see FAC at 7-8, Prayer for Relief), but the prior litigation exclusion precludes such coverage. Additionally, National Union's Counterclaim seeks a declaration that the National Union Policy does not provide coverage for the underlying litigation because of the Policy's retention provision, Pollution Exclusion, and Prior Litigation Exclusion. (See Counterclaim at 11, Prayer for Relief). Given the court's finding that the Prior Litigation Exclusion applies, further litigation regarding the retention and Pollution Exclusion -- no matter the outcome -- would not alter the essential finding that National Union is not required to provide coverage.
CONCLUSION
Based on the foregoing, IT IS ORDERED THAT:
1. National Union's Motion to Join Necessary Parties (Dkt. No. 48) is denied.
2. The parties' motions and cross-motions for partial summary judgment and summary judgment (Dkt No. 46) are granted in part and denied in part, as follows:
A. Catlin's motion for partial summary judgment on the issue of National Union's obligation to advance defense costs is denied. National Union's motion for partial summary judgment on the same issue is granted.
B. Catlin's motion for partial summary judgment on the issue of National Union's provision of primary coverage for defense costs, and Catlin's provision of excess coverage for the same, is denied. National Union's motion for partial summary judgment on this same issue is granted.
C. National Union's motion for summary judgment on its Second Affirmative Defense to the Catlin Complaint and on its Counterclaim on the basis of Catlin's failure to join Maddux and MMPI is denied.
D. National Union's motion for summary judgment on its Fourth Affirmative Defense to the Catlin Complaint and on its Counterclaim on the basis of the pollution exclusion is denied.
E. National Union's motion for summary judgment on its Fifth Affirmative Defense to the Catlin Complaint and on its Counterclaim on the basis of the prior litigation exclusion is granted. Judgment shall be entered accordingly.
JUDGMENT
Pursuant to the court's Order Re: Pending Motions for Summary Judgment and Joinder, issued contemporaneously with the filing of this Judgment, IT IS ADJUDGED that National Union is not obligated under AIG Executive and Organization Liability Insurance Policy number 01-499-96-86 to pay the defense costs of Richard Meruelo and John Maddux associated with Housing Authority of the City of Los Angeles v. PCC Technical Industries. Inc. et al., CV No. 11-1626 FMO (CWx) and Housing Authority of the City of Los Angeles v. 9901 Alameda et al., Los Angeles Superior Court Case No. BC557458. The above-captioned case is dismissed with prejudice. Each party shall bear its own fees and costs.