Wallis v. Centennial Ins. Co.

927 F.Supp.2d 909

Dale M. WALLIS, D.V.M., James L. Wallis, and Hygieia Biological Laboratories, Inc., a California Corporation, Plaintiffs,

v. CENTENNIAL INSURANCE COMPANY, INC., a New York corporation, Atlantic Mutual Insurance, Co., Inc., a New York corporation, Defendants,and Related Counterclaims and Third–Party Complaint.

No. CIV. 08–02558 WBS GGH.

United States District Court, E.D. California.

Feb. 28, 2013.

Joanna Rae Mendoza, Law Offices of Joanna R. Mendoza, Granite Bay, CA, Joel C. Baiocchi, Law Office of Joel C. Baiocchi, Dutch Flat, CA, for Plaintiffs.

David A. Evans, Gary Robert Selvin, Selvin Wraith Halman LLP, Oakland, CA, for Defendants.

MEMORANDUM AND ORDER RE: MOTION FOR JUDGMENT ON THE PLEADINGS

WILLIAM B. SHUBB, District Judge.

Plaintiffs Dale M. Wallis (“Dr. Wallis”), James L. Wallis (“Mr. Wallis”), and Hygieia Biological Laboratories Inc. (“Hygieia”) brought this action against defendants Centennial Insurance Company Inc. (“Centennial”) and Atlantic Mutual Insurance Co., Inc. (“Atlantic Mutual”) arising from plaintiffs' veterinarian professional liability insurance policy. Atlantic Mutual now moves for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c).

I. Factual and Procedural Background

Dr. Wallis is a research veterinarian. (Compl. ¶ 3 (Docket No. 1).) Plaintiffs allege that defendants issued her their standard veterinarian professional liability insurance (the “Policy”). ( Id. ¶ 8.) Dr. Wallis was the named insured under the Policy, and the Policy also covered Mr. Wallis and Hygieia because of their relationship with Dr. Wallis. ( Id.)

Beginning in 1993, Dr. Wallis was involved in a lawsuit over the intellectual property rights to a bovine vaccine she had developed while working for Poultry Health Laboratories (“PHL”). ( Id. ¶¶ 11–14.) Dr. Wallis tendered the defense of that action to defendants pursuant to the Policy, but they did not accept. ( Id. ¶ 16.) Dr. Wallis then filed an action in this court in which defendants were found to owe Dr. Wallis a duty to defend. ( Id. ¶¶ 16–17.)

A related lawsuit ensued, which involved a complaint by Dr. Wallis against PHL and its shareholders alleging that she had created the vaccine and that PHL had defrauded her of her invention. ( Id. ¶ 18.) In that action, PHL filed a cross-complaint against Dr. Wallis, Mr. Wallis, and Hygieia alleging unfair competition, interference with contractual relations and prospective economic advantage, misappropriation of trade secrets, and conversion. ( Id. ¶ 19.)

Defendants provided the defense to the PHL cross-complaint under a reservation of rights pursuant to the Policy. ( Id. ¶ 21.) Due to defendants' reservation of rights, plaintiffs obtained counsel of their choice, and defendants proceeded to pay the legal fees and costs incurred by plaintiffs' counsel. ( Id. ¶¶ 21–22.) However, defendants have allegedly begun “to impose unreasonable and illegal limitations upon the fees and costs that will be paid” and have “attempt[ed] to control the litigation by refusing to abide by the terms of the Policy.” ( Id. ¶¶ 22–23.)

Plaintiffs bring claims for breach of insurance contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. They also request a judicial determination as to the rights and duties of the parties under the Policy. Presently before the court is Atlantic Mutual's motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Plaintiff requests sanctions under 28 U.S.C. § 1927, the court's inherent authority, or Federal Rule of Civil Procedure 11, on the grounds that Atlantic Mutual's motion is vexatious and frivolous.

II. DiscussionA. Legal Standard

“After the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings.” Fed. R. Civ. 12(c). For the purposes of such a motion, the factual allegations of the non-moving party are taken as true and construed in the light most favorable to that party. Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir.2009) (citing Turner v. Cook, 362 F.3d 1219, 1225 (9th Cir.2004)). “Judgment on the pleadings is properly granted when there is no issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law.” Id.

Because motions made pursuant to Rules 12(c) and 12(b)(6) “are functionally identical,” the same legal standard of review is used. Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir.1989). Thus, the pleading standard articulated in Ashcroft v. Iqbal, 556 U.S. 662, 677–80, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554–563, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), applies to a motion for judgment on the pleadings. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054–55 & n. 4 (9th Cir.2011); Lowden v. T–Mobile USA Inc., 378 Fed.Appx. 693, 694 (9th Cir.2010). To survive a Rule 12(c) motion premised on the plaintiff's failure to state a claim, the complaint must contain sufficient factual matter, accepted as true, that states a claim to relief that is “plausible on its face.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Allegations that are merely consistent with liability fall short of plausibility of entitlement to relief. Id.

B. Judicial Notice

In general a court may not consider items outside the pleadings when deciding a motion for judgment on the pleadings, but may consider items of which it can take judicial notice. Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n. 18 (9th Cir.1999) (internal citations omitted); Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir.1994). A court may take judicial notice of facts “not subject to reasonable dispute” because they are either “(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201.

Plaintiffs have submitted a Request for Judicial Notice (“RJN”), (Docket No. 206), that contains the complaint, (RJN Ex. A (Docket No. 206–1)), answer, (RJN Ex. B (Docket No. 206–2)), counter-complaint, (RJN Ex. C (Docket No. 206–3)), “Separate Statement of Undisputed Material Facts in Support of Counter Motion for Summary Judgment,” (RJN Ex. D (Docket No. 206–4)), Declaration of Dale M. Wallis in Support of Motion For Partial Summary Judgment, (RJN Ex. E (Docket No. 206–5)), November 9, 1993 Memorandum and Order on cross motions for summary judgment and counter-claim, (RJN Ex. F (Docket No. 206–6)), and Stipulation for Dismissal with Prejudice, (RJN Ex. G (Docket No. 206–7)), in the action Dale M. Wallis, D.V.M. v. Centennial Insurance Company, Inc. and Atlantic Mutual Insurance Company, Inc., Case No. Civ. 93:1322–LKK–JFM (later 93:1322–WBS–GGH). Defendants do not object to the request.

The court will take judicial notice of these exhibits with the caveat that “[w]hile the authenticity and existence of a particular order, motion, pleading or judicialproceeding, which is a matter of public record, is judicially noticeable, veracity and validity of its contents (the underlying arguments made by the parties, disputed facts, and conclusions of applicable facts or law) are not.” United States v. S. Cal. Edison Co., 300 F.Supp.2d 964, 974 (E.D.Cal.2004); see also Harris v. County of Orange, 682 F.3d 1126, 1131 (9th Cir.2012) (explaining that courts may judicially notice documents on file in federal or state courts and taking judicial notice of a declaration filed by defendant in an earlier litigation); Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir.2001) (court may take judicial notice of another court's opinion, not for the truth of the facts recited therein, but for the existence of the opinion). The court likewise takes judicial notice of the decisions in Atlantic Mutual Insurance Company v. Commission of Internal Revenue, 523 U.S. 382, 118 S.Ct. 1413, 140 L.Ed.2d 542 (1998), Atlantic Mutual Insurance Company v. Commission of Internal Revenue, 111 F.3d 1056 (1997), and First United Methodist Church of San Jose v. Atlantic Mutual Insurance Company, Civ. No. 94–20036 RPA, 1995 WL 150429 (N.D.Cal. Mar. 29, 1995).

The court will not take judicial notice of the fact that prior to liquidation, Centennial Insurance Company was a wholly-owned subsidiary of Atlantic Mutual Insurance company. Plaintiffs argue that this fact is a matter of public record, but point the court to no public record asserting as much. SeeFed.R.Evid. 201(b) (fact may be judicially noticed if “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned”). In its opposition, plaintiff requests that the court notice this fact because it is in a Supreme Court case. As explained above, the court will take judicial notice of the case for its existence, but may not notice the facts recited within for their truth.¹Lee, 250 F.3d at 690.

Defendants request that the court take judicial notice of the Complaint, defendants' Answer and Centennial's Counterclaim and Third Party Complaint, plaintiff's Answer to Centennial's Counterclaim and Third Party Complaint, and the October 31, 2012 Order vacating the pretrial conference dates and trial date in this case. Plaintiffs do not oppose this request and the court grants it. See Harris, 682 F.3d at 1131.

C. Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing (Bad Faith)

In general, a non-party, or nonsignatory, to an insurance contract is not liable for a breach of that contract.²See, e.g., Britton v. Co-op Banking Group, 4 F.3d 742, 744 (9th Cir.1993) (noting that a “contractual right may not be invoked by one who is not a party to the agreement”); Henry v....