Alps Prop. & Cas. Ins. Co. v. Levine Law Grp., Inc.

646 F.Supp.3d 1304

ALPS PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiff, v. LEVINE LAW GROUP, INC., et al., Defendants.

Case No. 3:22-cv-00160-MMD-CSD

United States District Court, D. Nevada

Signed December 19, 2022

Brooke H. McCarthy, Kevin D. Hartzell, Kutak Rock LLP, Omaha, NE, Douglas R. Brown, Lemons, Grundy & Eisenberg, Reno, NV, for Plaintiff.

Erika Pike Turner, Garman Turner Gordon LLP, Las Vegas, NV, for Defendants.

ORDER

MIRANDA M. DU, CHIEF UNITED STATES DISTRICT JUDGE

I. SUMMARY

Plaintiff Alps Property & Casualty Insurance Company seeks declaratory judgment that the legal malpractice insurance policy ("Policy") it issued to Defendants Levine Law Group, Inc. and Ira S. Levine does not cover Defendants in a suit brought by The Parking REIT, Inc., MVP Realty Advisors, LLC, and Michael V. Shustek (collectively, the "Shustek Parties") against Defendants in Nevada state court ("Shustek Action"),¹ along with a declaration of no duty to defend or indemnify and a declaration that Plaintiff is entitled to reimbursement from Defendants for expenses Plaintiff incurs in defending Defendants in the Shustek Action. (ECF No. 1.) Before the Court is Defendants' motion to dismiss (ECF No. 12), or in the alternative, motion to transfer venue (ECF No. 13).² As further explained below, the Court in its discretion declines to exercise jurisdiction over this declaratory judgment action and therefore grants Defendants' motion to dismiss.

II. BACKGROUND

The following allegations are adapted from Plaintiff's complaint (ECF No. 1) and the Shustek Parties' state court amended complaint (ECF No. 12-2). Plaintiff is an insurance company incorporated and with its principal place of business in Montana. (Id. at 1.) Levine Law Group is a law firm incorporated and with its principal place of business in Nevada. (Id.) Levine is an attorney licensed in Nevada and the president, secretary, treasurer, and director of Levine Law Group. (Id.)

The Shustek Parties allege that Levine and Levine Law Group served as their counsel. (ECF No. 12-2 at 3-4.) Under a written agreement with MVP, Levine "was given title of General Counsel, Chief Administrative Officer, and Chief Operating Officer for [MVP]" but "was an independent contractor." (Id. at 3-4.) "During Levine's involvement with the Shustek Parties in 2017 and 2018, the Shustek Parties allege TPR was an 'incorporated Real Estate Investment Trust' focused on investing in parking lots and parking garages, MVP was a Nevada limited liability company and 'was at one time the advisor to TPR,' . . . and Shustek was 'a shareholder in and CEO of TPR and a principal and [m]anager of MVP." (ECF No. 1 at 2.)

Plaintiff asserts that the Shustek Parties allege the following. In or around 2017, as TPR began taking steps to become publicly traded, Levine "began a campaign to oust Shustek from TPR." (Id. at 3.) Levine "consistently took positions to paint Shustek in a negative light, to lobby others to take positions adverse to him, and even at one point to attempt to convince TPR to terminate Shustek so that Levine could take over as CEO of TPR." (Id. at 4.) Levine "published without Shustek's knowledge or consent the false statement to [the counsel of the initial public offering ("IPO") underwriters] that Shustek was under FBI investigation." (Id.) Levine "started an internal investigation of [a] contrived whistleblower complaint" against Shustek. (Id.) TPR engaged a law firm to conduct an investigation into the whistleblower allegations, which "cost millions of dollars" and "prevented TPR from meeting reporting and filing deadlines." (Id.) Shustek was eventually exonerated from any wrongdoing and kept on as TPR's CEO. (Id. at 5.)

On June 19, 2018, MVP terminated its "employment" agreement with Levine due to his conduct. (Id.) The Shustek Parties allege that because of Levine's adverse actions, "TPR was ultimately unable to proceed with its planned IPO" and the New York Stock Exchange "eventually declined the previously approved listing," resulting in millions of dollars in loss of value to TPR. (Id.)

Plaintiff issued Defendants the Policy, Lawyers Professional Liability Insurance Policy No. ALPS9032-16 for the policy period of May 15, 2019 to May 15, 2020. (Id. at 2, 12.) The Policy provides coverage for certain claims against Defendants subject to several exclusions. (Id. at 12-15.)

On January 21, 2020, the Shustek Parties filed a complaint in state court against Defendants, asserting claims for: (1) legal malpractice; (2) breach of fiduciary duty; (3) breach of confidential relationship—against Levine; (4) interference with prospective economic relations; (5) defamation per se—Shustek against Levine; (6) business disparagement—TPR against Levine; (7) false light—Shustek against Levine; (8) breach of the implied covenant of good faith and fair dealing; and (9) declaratory relief under NRS Chapter 30. (Id. at 5-6.) Presently, Plaintiff is providing Defendants with representation in the Shustek Action, "subject to a complete reservation of [Plaintiff's] rights to deny coverage and reimbursement of expenses incurred." (Id. at 15-16, 22.)

On April 6, 2022, Plaintiff filed this action seeking a declaratory judgment that the Policy does not afford coverage to Defendants for the Shustek Action, Plaintiff has no duty to defend or indemnify Defendants in the Shustek Action, and Plaintiff is entitled to reimbursement from Defendants for expenses incurred in defending them in the Shustek Action. (Id. at 16, 22-23.) Plaintiff alleges that six coverage exclusions apply, which the Court refers to as the: (1) "Professional Services" Exclusion; (2) "Reimbursement or Disgorgement of Fees" Exclusion; (3) "Intentionally Wrongful Act" Exclusion; (4) "Damages" Exclusion; (5) "Emotional Injury" Exclusion; and (6) "Prior to Effective Date" Exclusion. (Id. at 16-22.)

On May 11, 2022, the Shustek Parties amended their state court complaint, adding a fourth plaintiff, Vestin Mortgage, LLC, another Nevada limited liability company affiliated with Shustek, and a tenth claim for relief against Defendants: "Legal Malpractice - SEC Investigation and Complaint." (ECF No. 12-2 at 2-3, 26-28.)

III. DISCUSSION

The Court first addresses whether it will in its discretion exercise its jurisdiction over Plaintiff's declaratory judgment claims. As further explained below, because the Court ultimately finds that the relevant factors weigh against exercising jurisdiction and therefore declines to do so, it need not—and does not—reach the merits of Defendants' motion to dismiss Plaintiff's claims under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(3) nor their alternative motion to transfer venue.

A. Jurisdiction

The Declaratory Judgment Act states 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). In actions implicating the Declaratory Judgment Act, "the district court must first inquire whether there is an actual case or controversy within its jurisdiction." Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005) (citing Am. States Ins. Co. v. Kearns, 15 F.3d 142, 143 (9th Cir. 1994)). An insurer's declaratory relief action to determine a duty to defend and indemnify their insured in a pending state court case creates an actual case or controversy within the meaning of Article III, even when the underlying liability action has not yet proceeded to judgment. See Kearns, 15 F.3d at 144 (9th Cir. 1994). It is undisputed that this case is justiciable, as Plaintiff's request that the Court determine its legal duty to defend and indemnify Defendants in the underlying Shustek Action is an actual case and controversy within the meaning of Article III. See id.

But whether to hear a case under the Declaratory Judgment Act is committed to the Court's "unique and substantial discretion." Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). "In exercising authority under the Declaratory Judgment Act, a district court 'should avoid needless determination of state law issues; it should discourage litigants from filing declaratory actions as a means of forum shopping; and it should avoid duplicative litigation.' " Acuity v. Cifuni, Case No. 2:19-cv-01879-GMN-DJA, 2020 WL 5763606, at *2 (D. Nev. Sept. 28, 2020) (referencing the three Brillhart factors); see also Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). These prudential considerations reflect the core concerns of "how judicial economy, comity, and federalism are affected in a given case." Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1226 (9th Cir. 1998). The Court therefore must decide whether to exercise its jurisdiction by analyzing the Brillhart factors. See Robinson, 394 F.3d at 669 (citing Kearns, 15 F.3d at 143-44).

Defendants argue that the Court in its discretion should decline to exercise jurisdiction over Plaintiff's claims and dismiss them under the Declaratory Judgment Act, in pertinent part, because: (1) the requested declaratory action will not settle all aspects of the pending controversy; (2) the requested declaration of rights and status of the parties requires determination of purely Nevada state law issues; and (3) this filing was reactive to Defendants' demand for coverage for the purpose of procedurally fencing in Defendants in Plaintiff's favored forum. (ECF No. 12 at 19-22.) Plaintiff counters that the Court should exercise its jurisdiction because: (1) the exercise of jurisdiction does not result in needless litigation of state law issues; (2) the coverage suit is not reactive litigation, forum shopping, or procedural fencing; and (3) the exercise of jurisdiction will not result in duplicative litigation. (ECF No. 15 at 14-18.) As explained below, the Court agrees in pertinent part with Defendants and finds that...