Dorroh v. Deerbrook Ins. Co.

223 F.Supp.3d 1081

Robert DORROH, Barbara Dorroh, Cedar Sol Warren, Plaintiffs,

v.DEERBROOK INSURANCE COMPANY, a wholly-owned subsidiary of Allstate Insurance Company, Defendant.

No. 1:11-cv-02120-DAD-EPJ

United States District Court, E.D. California.

Signed December 9, 2016

Filed December 12, 2016

Joshua Markowitz, Carcione Cattermole Dolinski, San Mateo, CA, Aaron Benjamin Markowitz, Markowitz Law Group, San Jose, CA, Bradley Paul Elley, Incline Village, NV, for Plaintiffs.

Peter H. Klee, Charles A. Danaher, Sheppard Mullin Richter & Hampton LLP, San Diego, CA, Charles P. Maher, Luce Forward Hamilton & Scripps, LLP, San Francisco, CA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFS' PARTIAL MOTION FOR SUMMARY JUDGMENT

Dale A. Drozd, UNITED STATES DISTRICT JUDGE

This matter came before the court on May 17, 2016, for hearing on the parties' cross motions for summary judgment. Attorneys Charles Maher, Peter Klee, and Charles Danaher appeared on behalf of defendant and attorneys Bradley Elley, Aaron Markowitz, and Joshua Markowitz appeared on behalf of plaintiffs. The court has considered the briefing submitted by the parties as well as their oral arguments. For the reasons explained below, defendant's motion for summary judgment will be granted and plaintiffs' motion for partial summary judgment will be denied.

FACTUAL BACKGROUND

The following facts are undisputed by the parties on summary judgment. On March 13, 2000, Cedar Warren ("Warren") and Robert Dorroh were involved in a car accident. (Doc. No. 169-2 at 2, ¶ 2.) Warren was at fault for the accident, and Mr. Dorroh was seriously injured as a result. (Id. )

Warren was insured by defendant Deerbrook Insurance ("Deerbrook"), and that coverage had a policy limit of $15,000.¹ (Id. at 2, ¶ 1.) Because Dorroh was driving to work at the time of the accident, Dorroh also applied for workers' compensation in June 2000, following the incident. (Id. at 2, ¶ 3.) His workers' compensation carrier is third party Superior National Insurance Company ("Superior National"). (Id. at 2, ¶ 4.)

In July 2000, Robert and Barbara Dorroh requested that defendant Deerbrook settle their claim against Warren for $15,000. (Doc. No. 174-1. at 2, ¶ 4.) Defendant agreed. (Id. at 2, ¶ 5.) Before defendant had issued a check to the Dorrohs, however, Superior National contacted defendant Deerbrook to inform them of a potential lien on any insurance payout. (Doc. No. 169-2 at 2, ¶ 6.) Defendant told the Dorrohs that it would issue a check including both the Dorrohs and Superior National as the payee. (Id. at 3, ¶ 9.)² The Dorrohs responded by informing defendant Deerbrook that Mr. Dorroh's workers' compensation claim had been denied by Superior National (Id. at 3, ¶ 10.) In November 2000, the Dorrohs demanded that defendant's check be made payable solely to them. (Id. at 3, ¶ 10.) In January 2001, the Dorrohs reiterated their demand, and offered to "indemnify your insured and hold your insured harmless from any third parties." (Id. at 4–5, ¶ 12.) In the end, the Dorrohs and Deerbrook Insurance Company could not reach a settlement agreement. (Id. at 3–4, ¶¶ 12–14.)

The Dorrohs filed suit against Warren in February 2001. (Id. at 5, ¶ 14.) In 2006, the Dorrohs proposed to Deerbrook a stipulated judgment for an unspecified amount in exchange for a covenant not to execute against Warren. (Doc. No. 174-1 at 8, ¶ 29.) However, the parties were unable to agree to the stipulated judgment. (Id. at 8, ¶ 31.)

In 2007, Warren filed for bankruptcy in the District of Oregon. (Id. at 9, ¶ 32.) Warren listed a bad faith claim against defendant Deerbrook as an asset in his bankruptcy filing. (Id. at 9–11, ¶ 34–35, 39.) Following the granting of relief by the bankruptcy court from the automatic stay, the case ultimately went to bench trial in the Tuolumne County Superior Court³ and, in May 2008, the Dorrohs were awarded a judgment in the amount of approximately $16,520,169.65 against Warren. (Id. at 9, ¶ 32.)

On April 19, 2011, the trustee in Warren's bankruptcy filed this suit against defendant Deerbrook. (Doc. No. 1.) In July 2011, the trustee and the Dorrohs agreed to assign the claim from Warren to the Dorrohs in exchange for $215,000, and a promise not to execute upon the judgment against Warren. (Doc. No. 24.) On September 19, 2011, the Dorrohs substituted into this action as plaintiffs. (Doc. No. 26.) This case was transferred from the U.S. District Court for the District of Oregon to this court in December of 2011. (Doc. No. 36.) The trustee in Warren's bankruptcy action was discharged on May 9, 2012. (Doc. No. 129 at 2.) On June 18, 2015, Cedar Sol Warren was granted permission by the court to substitute in as plaintiff in this action to pursue his personal claim for bad faith against Deerbrook, which claim was not assignable in his bankruptcy action. (Doc. Nos 127, 129 at 2.)

On September 25, 2011, plaintiffs Robert and Barbara Dorroh and Cedar Sol Warren filed the First Amended Complaint ("FAC") upon which this action now proceeds. (Doc. No. 136.) Therein, plaintiffs assert two causes of action: (i) breach of the insurance contract between Deerbrook and Warren, including breach of the implied duty of good faith and fair dealing, based on defendant Deerbrook's failure to accept the 2001 settlement, (Id. at 4–5); and (ii) tortious breach of the duty of good faith and fair dealing based on defendant's failure to accept the 2001 settlement, failure to enter into the proposed stipulated judgment of 2006, and advising plaintiff Warren to file for bankruptcy. (Id. at 6–7.) Plaintiffs seek the award of economic damages, damages for plaintiff Warren's mental and emotional distress, punitive damages, and attorneys' fees. (Id. at 5–6.)

On April 4, 2016, defendant Deerbrook filed a motion for summary judgment, which they amended on the same day. (Doc. Nos. 169–70). Plaintiffs filed their opposition to the motion on May 3, 2016. (Doc. No. 174.) Defendant filed their reply on May 10, 2016. (Doc. No. 175.)

On April 11, plaintiffs filed a motion for partial summary judgment. (Doc. No. 171.) Defendant filed an opposition to plaintiffs' motion on April 29, 2016, and plaintiffs filed their reply on May 10, 2016. (Doc. Nos. 174, 176.)

Following the May 17, 2016 hearing on the parties' cross motions for summary judgment, both plaintiffs and defendant filed letter briefs with the court further summarizing their arguments on summary judgment and providing additional authorities in support thereof. (Doc. Nos. 183–184.)

ARGUMENTS OF PARTIES

Defendant advances a number of arguments in moving for summary judgment in their favor. (Doc. Nos. 169–170.) In particular, defendant contends that plaintiffs' contract and tort-based bad faith claims concerning the 2001 settlement offer are barred by California law; that plaintiffs' additional bad faith claims—those concerning the stipulated judgment proposal of 2006 and plaintiffs' bankruptcy proceedings—all fail as a matter of law; and that plaintiffs are not entitled to punitive damages because they have not demonstrated the requisite malice, fraud, or oppression. (Id. )

Plaintiffs move for partial summary judgment on their claim that Deerbrook acted in bad faith by rejecting the Dorrohs' 2001 settlement offer. (Doc. No. 171.) In their opposition to defendant's motion, plaintiffs also argue that genuine issues of material fact remain, thereby precluding summary judgment as to their bad faith claims concerning the stipulated judgment proposal of 2006, the bankruptcy proceedings, and their entitlement to punitive damages, (Doc. No. 174 at 45–46, 48–54).

LEGAL STANDARDS

Summary judgment is appropriate when the moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In a motion for summary judgment, the moving party "initially bears the burden of proving the absence of a genuine issue of material fact." In re Oracle Corp. Securities Litigation , 627 F.3d 376, 387 (9th Cir. 2010) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). The moving party may meet its burden by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials" or by showing that such materials "do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1)(A), (B).

If the moving party would bear the burden of proof on an issue at trial, that party must "affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party." Soremekun v. Thrifty Payless, Inc. , 509 F.3d 978, 984 (9th Cir. 2007). In such a circumstance, summary judgment should be granted, "so long as whatever is before the district court demonstrates that the standard for entry of summary judgment ... is satisfied." Id. at 323, 106 S.Ct. 2548. When the non-moving party bears the burden of proof at trial, however, "the moving party need only prove that there is an absence of evidence to support the nonmoving party's case." Oracle Corp. , 627 F.3d at 387 (citing Celotex , 477 U.S. at 325, 106 S.Ct. 2548 ); see also Fed. R. Civ. P. 56(c)(1)(B). Indeed, summary judgment should be entered, after adequate time for discovery and upon motion, against a party who 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. See Celotex , 477 U.S. at 322, 106 S.Ct. 2548. "[A] complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id. In such a circumstance,...