Atain Specialty Insurance Company v. Marquez ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 ATAIN SPECIALTY INSURANCE No. 1:19-cv-01672-DAD-SAB COMPANY, a Michigan Corporation, 12 Plaintiff, 13 ORDER DENYING DEFENDANT v. MARQUEZ’S MOTION TO DISMISS OR 14 STAY THIS ACTION LORENZO MARQUEZ, an individual 15 doing business as LM CONSTRUCTION, (Doc. No. 43) et al., 16 Defendants. 17 18 19 This matter is before the court on defendant Lorenzo Marquez’s motion to dismiss this 20 action for lack of subject matter jurisdiction and failure to state a claim or in the alternative to 21 stay this action pending resolution of an underlying state court action. (Doc. No. 43.) Pursuant to 22 General Order No. 617 addressing the public health emergency posed by the COVID-19 23 outbreak, the motion was taken under submission on the papers. (Doc. No. 46.) For the reasons 24 set forth below, defendant Marquez’s motion will be denied in its entirety. 25 BACKGROUND 26 Plaintiff Atain Specialty Insurance Company (“Atain”) is an insurance company that is 27 “organized and existing under the laws of the State of Michigan with its principal place of 28 business in Farmington Hills, Michigan, and [is] authorized to write insurance as a surplus line[] 1 insurer in the State of California.” (Doc. No. 1 (“Compl.”) at ¶ 4.) Defendant Marquez is an 2 individual residing in California and doing business as LM Construction, which has its principal 3 place of business in Madera, California. (Id. at ¶ 5.) 4 Between September 2013 and September 2017, Atain issued four consecutive insurance 5 policies that identified the named insured in the declarations of those policies as Lorenzo 6 Marquez doing business as LM Construction (collectively, “the policies”). (Id. at ¶ 21.) The 7 policies contain an insuring agreement wherein Atain agrees to pay any sums that the insured 8 becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to 9 which the policies apply. (Id. at ¶ 22.) Each of the policies contains various exclusions that limit 10 the scope of the insuring agreement clause, including, as relevant here, a “New Construction 11 Residential Exclusion.” (Id. at ¶ 23; see also id. at ¶ 25.) That exclusion states that 12 it is understood and agreed that no coverage exists and no duty to defend is provided for: 13 Any and all claims, including but not limited to, claims for “bodily 14 injury,” “property damage,” or “personal and advertising injury,” arising out of, related to, caused by, or associated with, in whole or 15 in part, the “new construction” of residential properties, including but not limited to single family dwellings, duplexes, three and four 16 family dwellings, townhomes or condominiums. 17 (Id. at ¶ 24; see also id. at ¶ 25.) Each of the policies also includes a “Joint Venture Provision” 18 under the “Who Is An Insured” section, which notes that “[n]o person or organization is an 19 insured with respect to the conduct of any current or past partnership, joint venture or limited 20 liability company that is not shown as a Named Insured in the Declarations.” (Id. at ¶ 26.) 21 On August 30, 2019, the owners of sixteen single family homes and real property located 22 in Dos Palos, California and/or Merced County, California (“the state court plaintiffs”) filed a 23 class action lawsuit (“the underlying action”) in the Merced County Superior Court against 24 defendant Marquez, LM Construction, an entity identified as “LM Construction LLC,” as well as 25 other individuals and corporate entities. (Id. at ¶ 6.) In that underlying action, the state court 26 plaintiffs allege that defendant Marquez is an individual doing business as LM Construction, that 27 LM Construction is his “alter ego,” and that he is the managing member, officer, and alter ego of 28 LM Construction LLC. (Id. at ¶ 7.) They also allege that defendant Marquez and each of the 1 defendants in that action, including the other named individuals and corporate entities, are 2 engaged in the business of developing, designing, constructing, and selling real estate, that each 3 of those defendants are the “alter ego, joint venture and enterprise of the other” and that each of 4 the them had a “joint economic and business interest, goal, and purpose” in the construction of 5 the homes of the state court plaintiffs. (Id. at ¶¶ 7, 8.) The state court plaintiffs also allege that 6 defendant Marquez and the other defendants in that action “developed, designed, constructed, 7 marketed, and/or sold” them homes that suffer from “common class water heater system 8 deficiencies,” which allegedly fall below the relevant construction and performance standards. 9 (Id. at ¶ 9.) The state court plaintiffs assert the following eight causes of action against defendant 10 Marquez and the other defendants in that action: strict liability, negligence, negligence per se, 11 breach of express warranties, breach of implied warranties, breach of contract, breach of third 12 party beneficiary contract, and violation of California Civil Code §§ 896 et seq. (Id. at ¶ 10.) 13 Although the exact date is not alleged in Atain’s complaint filed with this court, defendant 14 Marquez tendered the underlying action to Atain for a defense and indemnification pursuant to 15 the insurance policies. (Id. at ¶ 27.) Atain agreed to defend defendant Marquez in the underlying 16 action subject to a reservation of its rights under the policies, including seeking a judicial 17 declaration that it is not obligated to defend defendant Marquez in the underlying state court 18 action, and recovering all defense fees and costs it will have incurred in defending him in that 19 action. (Id.) 20 On November 25, 2019, Atain initiated this declaratory relief action in this federal court 21 against defendant Marquez doing business as LM Construction and the state court plaintiffs.1 22 (Compl.) Therein, Atain seeks a declaration from this federal court that the damages sought by 23 the state court plaintiffs against defendant Marquez in the underlying action are not covered under 24 the insurance policies because of the new residential construction exclusion and joint venture 25 26 1 On August 11, 2020, Atain and the state court plaintiffs stipulated to dismissing the state court plaintiffs from this action. (Doc. No. 62.) The state court plaintiffs agree to be bound by this 27 court’s judgment in this declaratory judgment action. (Id. at 2.) On August 12, 2020, the court gave effect to the stipulation and terminated the state court plaintiffs from this action. (Doc. No. 28 63.) 1 provision, and further seeks to recover its costs expended to defend Marquez in the underlying 2 action. 3 On April 15, 2020, defendant Marquez filed the pending motion to dismiss this action for 4 lack of subject matter jurisdiction and for failure to state a claim. (Doc. No. 43 at 5–12.) In the 5 alternative, defendant Marquez asks this court to stay this action pending resolution of the 6 underlying action in state court. (Id. at 12–14.) 7 On May 20, 2020, Atain filed its opposition to the pending motion, and on May 27, 2020, 8 defendant Marquez filed his reply thereto. (Doc. Nos. 49, 52.) 9 DISCUSSION 10 The court will first address defendant Marquez’s argument that this court lacks subject 11 matter jurisdiction over this action. 12 A. Motion to Dismiss for Lack of Subject Matter Jurisdiction 13 “When a defendant moves to dismiss a complaint or claim for lack of subject matter 14 jurisdiction, the plaintiff bears the burden of proving that the court has jurisdiction to decide the 15 claim.” Cannon v. Harco Nat’l Ins. Co., No. 09-cv-00026-MMA-JMA, 2009 WL 10725673, at 16 *2 (S.D. Cal. July 16, 2009) (citing Thornhill Publ’n Co. v. Gen. Tel. & Elecs. Corp., 594 F.2d 17 730, 733 (9th Cir. 1979)). A motion to dismiss for lack of subject matter jurisdiction pursuant to 18 Federal Rule of Civil Procedure 12(b)(1) “may be facial or factual.” Safe Air for Everyone v. 19 Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “In a facial attack, the challenger asserts that the 20 allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction.” 21 Id. (citing White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000)). “The district court resolves a facial 22 attack as it would a motion to dismiss under Rule 12(b)(6): [a]ccepting the plaintiff’s allegations 23 as true and drawing all reasonable inferences in the plaintiff’s favor, the court determines whether 24 the allegations are sufficient as a legal matter to invoke the court’s jurisdiction.” Leite v. Crane 25 Co., 749 F.3d 1117, 1121 (9th Cir. 2014). As is true in evaluating a Rule 12(b)(6) motion, the 26 court need not assume the truth of legal conclusions cast in the form of factual allegations. 27 Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003). “By contrast, in a 28 factual attack, the challenger disputes the truth of the allegations that, by themselves, would 1 otherwise invoke federal jurisdiction.” Safe Air for Everyone, 373 F.3d at 1039. Notably, courts 2 can consider extrinsic evidence for factual attacks, and may review “any evidence, such as 3 affidavits and testimony, to resolve factual disputes concerning the existence of jurisdiction.” 4 McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988) (emphasis added) (citing Land v. 5 Dollar, 330 U.S. 731 (1947)). 6 In the pending motion, defendant Marquez argues that this court lacks subject matter 7 jurisdiction over this action both because diversity of citizenship is lacking and because the 8 amount in controversy has not been sufficiently alleged, as required by 28 U.S.C. § 1332. The 9 court addresses each argument in turn below. 10 1. Diversity of Citizenship 11 “[A] corporation [is] . . . a citizen of every State and foreign state by which it has been 12 incorporated and of the State or foreign state where it has its principal place of business.” 28 13 U.S.C. § 1332(c)(1); see also Breitman v. May Co. California, 37 F.3d 562, 564 (9th Cir. 1994) 14 (“[A] corporation is typically a citizen of two states for determining the existence of diversity 15 jurisdiction: the state of incorporation and the state in which it has its principal place of 16 business.”). The Supreme Court has held that 17 “principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the 18 corporation’s activities. It is the place that Courts of Appeals have called the corporation’s “nerve center.” And in practice it should 19 normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of 20 direction, control, and coordination, i.e., the “nerve center” . . .. 21 Hertz Corp. v. Friend, 559 U.S. 77, 92–93 (2010); see also Harris v. Rand, 682 F.3d 846, 851 22 (9th Cir. 2012) (“In Hertz, the Supreme Court resolved [ ] differing circuit court interpretations 23 and settled on the ‘nerve center’ test,” thus “provid[ing] a uniform test for courts to apply when 24 determining the principal place of business for federal diversity jurisdiction purposes.”). 25 Here, defendant Marquez argues that “although Atain has alleged that they are a citizen of 26 the State of Michigan, it is clear from their filings [in this action] that they are also citizens of the 27 State of California.” (Doc. No. 43 at 6.) Specifically, defendant Marquez contends that Atain’s 28 “principal place of business” is in California because: 1 Atain, within their filings, produced endorsements through their broker – Burns & Wilcox, registered as a California Corporation but 2 claiming the same corporate offices in Farmington Hills, MI as Atain. (See Plaintiff’s Document 1-2, Page 75 of 166, and Document 3 1-3, Page 6 of 77). Although the insurer is listed as Atain Specialty Insurance Company, the endorsement is countersigned by Bonnie 4 Frank, an associate managing director of Burns & Wilcox, located in San Diego. Both Atain and Burns & Wilcox are wholly owned 5 subsidiaries of H.W. Kaufman, Inc. (See Exhibit B), and all three entities declare that their corporate offices are in Farmington Hills, 6 MI, while producing and signing the policies out of their San Diego, California office by Corporate Officers residing and conducting their 7 principal business in California. 8 (Id.) Defendant Marquez argues that Atain’s allegation that its principal place of business is in 9 Farmington Hills, Michigan “is not consistent with the documents they have submitted in this 10 matter demonstrating that their co-subsidiaries and their corporate officers are headquartered in, 11 and conducting business in California.” (Id.) The court is not persuaded by this argument. 12 First, defendant Marquez provides no analysis in support of his assertion that Atain’s 13 principal place of business is in California. Marquez argues that Atain’s “corporate officers” 14 reside and conduct business in California but, except for mentioning the associate managing 15 director for Burns & Wilcox, he does not identify who these corporate officers are, much less 16 why he believes them to be Atain’s corporate officers. Moreover, even if the court were to 17 assume that Atain has corporate agents conducting business in California, defendant Marquez 18 does not contend in the pending motion that these alleged agents direct, control, and coordinate 19 Atain’s corporate activities, or that Atain is headquartered in California. Second, defendant 20 Marquez provides no argument, analysis, or support in the case law for his contention that 21 because Burns & Wilcox is located in San Diego, California, that necessarily means that Atain’s 22 principal place of business is in San Diego, California. Third, defendant Marquez argues that 23 because he challenged Atain’s allegations with respect to jurisdiction, Atain had an obligation “to 24 step up and demonstrate their ‘nerve center’ was in Michigan . . ..” (Doc. No. 52 at 4); see also 25 Hertz Corp., 559 U.S. at 96–97 (“When challenged on allegations of jurisdictional facts, the 26 parties must support their allegations by competent proof.”). However, here, the court finds that 27 defendant Marquez has not actually challenged Atain’s allegation that its principal place of 28 business is in Farmington Hills, Michigan; rather, he has merely leveled general, unsupported, 1 and vague arguments that Atain’s principal place of business is in California. See Braase v. 2 Battelle Energy All., LLC, No. 4:14-CV-00481-EJL, 2016 WL 676358, at *1 (D. Idaho Feb. 18, 3 2016) (“A factual attack [on subject matter jurisdiction] . . . does not assume the truth of a 4 plaintiff’s allegations but instead challenges them by introducing extrinsic evidence, requiring the 5 plaintiff to support his jurisdictional allegations with competent proof.”) (emphasis added); Int'l 6 Bhd. of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers Local 1 v. Kirk & 7 Blum Mfg. Co., Inc., No. 09 C 2014, 2010 WL 11655414, at *2 (N.D. Ill. Feb. 25, 2010) 8 (“Ordinarily, though, a factual challenge [to subject matter jurisdiction] requires more than a 9 conclusory assertion that a factual basis for jurisdiction does not exist; the defendant must provide 10 some evidence supporting jurisdiction is not proper.”); see also McNutt v. Gen. Motors 11 Acceptance Corp. of Indiana, 298 U.S. 178, 189 (1936) (“If [the plaintiff’s] allegations of 12 jurisdictional facts are challenged by his adversary in any appropriate manner, he must support 13 them by competent proof.”) (emphasis added). 14 Accordingly, the court finds that Atain is a citizen of Michigan and thus there is a 15 complete diversity of citizenship here to support this court’s jurisdiction over the matter. 16 2. Amount in Controversy 17 Defendant Marquez next argues that this court lacks subject matter jurisdiction over this 18 action because Atain has failed to sufficiently allege that the amount in controversy here exceeds 19 $75,000.00. (Doc. No. 43 at 6–8.) Specifically, he argues that “there is not one single dollar 20 amount referenced in Plaintiff’s Complaint nor their volumes of attachments.” (Id. at 7.) 21 Pursuant to 28 U.S.C. § 1332, where, as here, the parties in an action are citizens of 22 different states, “[t]he district courts shall have original jurisdiction of all civil actions where the 23 matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.” The 24 amount in controversy “includes claims for general and special damages (excluding costs and 25 interests), attorneys fees if recoverable by statute or contract, and punitive damages, if 26 recoverable as a matter of law.” Pulera v. F & B, Inc., No. 2:08-cv-00275-MCE-DAD, 2008 WL 27 3863489, at *2 (E.D. Cal. Aug. 19, 2008). “When a plaintiff files suit in federal court, [courts] 28 use the ‘legal certainty’ test to determine whether the complaint meets § 1332(a)’s amount in 1 controversy requirement.” Naffe v. Frey, 789 F.3d 1030, 1039 (9th Cir. 2015). Under this test, 2 “[t]he sum claimed by the plaintiff controls so long as the claim is made in good faith.” Crum v. 3 Circus Enters., 231 F.3d 1129, 1131 (9th Cir. 2000); see also St. Paul Mercury Indem. Co. v. Red 4 Cab Co., 303 U.S. 283, 288 (1938) (“The rule governing dismissal for want of jurisdiction in 5 cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by 6 the plaintiff controls if the claim is apparently made in good faith.”). 7 Here, the court notes that Atain’s complaint in this action does not allege a specific 8 amount in controversy. (See generally Compl.) The parties agree that when an insurer seeks a 9 judicial declaration that it does not owe a duty to defend an insured with respect to an underlying 10 lawsuit, the amount in controversy in the declaratory relief action is the amount of potential 11 liability in the underlying action plus the costs incurred by the insurer in defending the insured in 12 the underlying action. (See Doc. Nos. 43 at 7; 49 at 3.) Defendant Marquez notes that the 13 complaint and first amended complaint in the underlying state court action, which were attached 14 to the complaint in this action, also do not allege the monetary value of the claims asserted by the 15 state court plaintiffs in that action. (Doc. No. 43 at 7; see also Doc. No. 1-1, Exs. A, B.) 16 Although Atain has failed to specifically and clearly articulate the amount in controversy 17 in its complaint, in opposition to the pending motion, it points to the allegations in the underlying 18 state court action to show that the amount in controversy in this action exceeds $75,000.00. (Doc. 19 No. 49 at 3–4.) As noted, the underlying lawsuit is a class action wherein the owners of sixteen 20 single family homes and real property located in California claim that defendant Marquez and 21 others allegedly developed, designed, constructed, marketed, and/or sold them homes that suffer 22 from water heater system deficiencies, which allegedly fell below the relevant construction and 23 performance standards. (See generally Doc. No. 1-1, Exs. A, B.) The state court plaintiffs allege 24 that the defective construction has resulted in various types of damages to their homes, including 25 but not limited to property damage to the homes’ foundations, interiors and exterior finishes, 26 driveways, roof and roof components, wall finishes, sub-floors, as well as corrosion of pipes, 27 valves, connections, fittings and loss of function thereof, and the costs to repair and correct the 28 various deficiencies. (Id. at 19–20.) The state court plaintiffs seek general and special damages, 1 costs of suit, and attorneys’ fees and costs. (Id. at 29.) Moreover, in this declaratory action, 2 Atain seeks recovery of the costs to defend Marquez in the underlying action, which was filed in 3 August of 2019. (Compl.) 4 Based on the nature of the claims in the underlying action and the number of plaintiffs in 5 that action, as well as the fact that Atain will be entitled to recover the costs it has already 6 incurred in defending Marquez in the underlying action should it prevail before this court, the 7 court finds that it appears to a legal certainty that the amount in controversy in this action exceeds 8 $75,000.00. 9 Because defendant Marquez has failed to establish that this court lacks subject matter 10 jurisdiction over the matter, his motion to dismiss this action for lack of subject matter will be 11 denied. 12 B. Motion to Dismiss for Failure to State a Claim 13 Defendant Marquez next argues that Atain’s complaint for declaratory relief fails to state a 14 claim upon which relief can be granted, citing to the factors that a district court is to consider 15 when determining whether to maintain jurisdiction over a declaratory relief action. (Doc. No. 43 16 at 9–10); see also Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1107 (9th Cir. 2011). Defendant 17 Marquez’s argument is misplaced. Atain’s complaint does state a claim upon which relief may be 18 granted: Atain alleges that it has no obligation to defend defendant Marquez in the underlying 19 state court action pursuant to the insurance policies because of the new construction residential 20 exclusion and the joint venture provision of those policies. Whether that is true remains to be 21 seen; that is the point of this litigation. However, assuming that Atain’s allegations are true, as 22 the court must at this stage of these proceedings, those allegations plausibly state a cognizable 23 claim. 24 To the extent that defendant Marquez is arguing that this federal court should decline to 25 exercise its jurisdiction over this declaratory relief action, the court is also not persuaded by that 26 argument. The Ninth Circuit has held that in determining whether it should maintain jurisdiction 27 over a declaratory action, a district court 28 ///// 1 is to consider a variety of factors, including whether retaining jurisdiction would: (1) involve the needless determination of state 2 law issues; (2) encourage the filing of declaratory actions as a means of forum shopping; (3) risk duplicative litigation; (4) resolve all 3 aspects of the controversy in a single proceeding; (5) serve a useful purpose in clarifying the legal relations at issue; (6) permit one party 4 to obtain an unjust res judicata advantage; (7) risk entangling federal and state court systems; or (8) jeopardize the convenience of the 5 parties. 6 Allstate Ins. Co., 634 F.3d at 1107. Below, the court addresses each of these factors in turn. 7 1. Needless Determination of State Law Issues 8 “A ‘needless determination of state law’ arises under several circumstances. It may 9 involve an ongoing parallel state proceeding regarding the precise state law issue, an area of law 10 Congress expressly reserved to the states, or a lawsuit with no compelling federal interest (e.g., a 11 diversity action).” 757BD LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 330 F. Supp. 3d 12 1153, 1162 (D. Ariz. 2016). “However, there is no presumption in favor of abstention in 13 declaratory actions generally, nor in insurance coverage cases specifically.” Gov’t Employees 14 Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) 15 Defendant Marquez’s argument with respect to this first factor is confusing and difficult to 16 decipher. He appears to be arguing that because LM Construction LLC is a named as a defendant 17 in the underlying state court action, this court will have to determine whether the LLC was 18 covered by the policies, requiring it to “review the facts independent of the state court matter, and 19 apply California Law – and possibly come to a different conclusion regarding the relative role of 20 the LLC in determining whether to coverages were appropriately excluded.” (Doc. No. 43 at 10.) 21 Again, defendant Marquez’s argument is misplaced. This is a declaratory relief action in which 22 Atain is seeking a declaration that it has no duty to defend defendant Marquez doing business as 23 LM Construction in the underlying state court action. LM Construction LLC is not a named 24 defendant in this action, and defendant Marquez does not contend that the LLC is covered by the 25 insurance policies at issue. Moreover, the underlying state court action is not concerned with the 26 scope of coverage owed by Atain to defendant Marquez, or to any other defendant in that action 27 for that matter. In other words, the underlying state court proceeding is not addressing the 28 coverage issue that this court is presented with here. Accordingly, the court finds that 1 consideration of this first factor does not weigh in favor of the court declining exercise of its 2 jurisdiction. 3 2. Forum Shopping 4 Defendant Marquez concedes that this factor is not at issue in this action. (Doc. No. 43 at 5 11.) Accordingly, this factor is neutral. 6 3. Risk of Duplicative Litigation 7 Defendant Marquez argues that “there is no reason why Atain cannot file a declaratory 8 judgment action in state court that resolves the duty to defend.” (Id.) Be that as it may, Atain 9 chose to file its declaratory judgment action in this federal court. Again, the issues before this 10 court concern the scope of coverage as it relates to the insurance policies Atain issued to 11 defendant Marquez and the claims asserted against him in the underlying action. These coverage 12 issues are not pending before the state court, nor is Atain a party in the underlying state court 13 action. There is therefore very little, if any, risk of duplicative litigation. Accordingly, the court 14 finds that consideration of this factor also does not weigh in favor of declining jurisdiction. 15 4. Resolve All Aspects of the Controversy in a Single Proceeding and Clarify the 16 Legal Relations at Issue 17 Defendant Marquez concedes that “it is not likely that [the fourth and fifth] factors favor[] 18 declining jurisdiction.” (Id. at 12.) Indeed, it appears that defendant Marquez concedes that this 19 court’s retention of this action will resolve all the issues presented here. (See id.) (“It is likely 20 that retaining jurisdiction would resolve the only controversy in this matter—Atain’s duty to 21 defend Marquez.”). Accordingly, the court finds that consideration of the fourth and fifth factors 22 also do not weigh in favor of declining the exercise of jurisdiction. 23 5. Unjust Res Judicata Advantage 24 Defendant Marquez argues that, “[a]lthough the issue of coverage is not per-se an issue in 25 the State Court matter, it has been made an issue by Atain’s request to exclude coverage to the 26 LLC.” (Id.) The court is again confused by defendant Marquez’s argument. To the extent that 27 he is contending that any determination this court makes with respect to coverage will adversely 28 affect LM Construction LLC in the underlying state court action, this court again notes that its 1 determinations with respect to insurance coverage have no relation to the determination of 2 whether or not any of the defendants in the underlying action, including the LLC, are liable to the 3 state court plaintiffs. Moreover, the LLC is not a defendant in this action, nor is it a named as an 4 insured in any of the applicable policies. Accordingly, the court finds that its retention of 5 jurisdiction over this action will not result in an unjust res judicata advantage for any party, and 6 that consideration of this factor therefore also does not weigh in favor of declining jurisdiction. 7 6. Entangling the Federal and State Courts 8 With respect to this factor, defendant Marquez argues that “[c]learly, this declaratory 9 judgment request by Atain will entangle the two courts, and require this Court to ascertain state 10 law issues of agency, liability, and responsibility that are better left in state court.” (Id.) First, the 11 court is unsure as to what issues of agency, liability, and responsibility defendant Marquez is 12 referring to in advancing this argument. Second, as discussed above, this action is not entangling 13 this federal court and the state court that is presiding over the underlying action. To the contrary, 14 the issues presented to the two courts are distinct and do not appear to overlap or directly affect 15 one another. Accordingly, consideration of this factor also does not weigh in favor of declining 16 the exercise of jurisdiction. 17 7. Convenience of the Parties 18 Finally, defendant Marquez contends that he will be inconvenienced by being “forced to 19 litigate and conduct discovery in both federal and state court on a matter that could very easily be 20 brought in state court.” (Id.) He argues that as a result of Atain’s decision to file this action in 21 federal court, “counsel for Marquez in the State Court matter – retained by Atain, is effectively 22 prevented from litigating in this matter, requiring two sets of counsel on two matters.” (Id.) The 23 court is again baffled by defendant Marquez’s arguments. If Atain had elected to file this 24 declaratory action in state court, defendant Marquez would still have had to litigate (and therefore 25 incur costs and conduct discovery in connection with) two separate actions: one against the state 26 court plaintiffs, and the other against Atain. Moreover, it is highly unlikely that the counsel 27 Atain has retained to defend Marquez in the underlying action would be able to defend him 28 against Atain’s coverage suit, given the obvious conflict of interest that would be posed by such 1 representation. Accordingly, consideration of this final factor also does not weigh in favor of 2 declining jurisdiction. 3 The court concludes that consideration of all the relevant factors does not weigh in favor 4 of declining jurisdiction over this action. Accordingly, defendant Marquez’s request that this 5 court decline to exercise its jurisdiction over this declaratory action will be denied. 6 C. Motion to Stay this Action Pending Outcome of Underlying Action 7 In the last of what appear to be his desperate attempts to convince this court not to 8 consider the merits of Atain’s claims in this action, defendant Marquez requests that this court 9 stay this action pending the outcome of the underlying action in state court. (Doc. No. 43 at 13– 10 14.) “To eliminate the risk of inconsistent factual determinations that could prejudice the insured, 11 a stay of the declaratory relief action pending resolution of the third party suit is appropriate when 12 the coverage question turns on facts to be litigated in the underlying action.” Montrose Chem. 13 Corp. v. Superior Court, 6 Cal. 4th 287, 301 (1993). 14 Here, for the reasons discussed above, the court finds that a stay is not warranted at this 15 time because defendant Marquez has not established that the coverage questions in this action 16 turn on the facts that are being litigated in the underlying state court action. Although defendant 17 Marquez does not make this argument, the court notes that there is a potential for overlap of 18 factual issues given that one of Atain’s claims in this action is that it has no duty to defend 19 Marquez based on the joint venture provision in its insurance policies and the fact that the state 20 court plaintiffs allege that the defendants in the underlying action were part of a joint venture. 21 (Compl. at 11.) Were this court to make a determination as to whether the joint venture provision 22 applies in this coverage action, that determination may not be consistent with the state court’s 23 determination as to whether the defendants in the underlying action were part of a joint venture. 24 However, there is nothing now before the undersigned suggesting that this issue has been or will 25 be litigated in the underlying action or whether the parties in that action have stipulated to that 26 fact. In fact, the issue has not been broached, let alone briefed. 27 ///// 28 ///// wOoOw 4:40 UV VEY EONAR SEA MUO i POC PAY AT At 1 Because the burden is on defendant Marquez as the movant seeking a stay, and because he 2 | has not established that the coverage questions in this action turn on facts to be litigated in the 3 | underlying state court action, defendant Marquez’s motion to stay this action will also be denied. 4 CONCLUSION 5 For the reasons set forth above, defendant Marquez’s motion to dismiss this action for 6 || lack of subject matter jurisdiction and failure to state a claim or in the alternative to stay this 7 | action pending resolution of the underlying action (Doc. No. 43) is denied. 8 9 IT IS SO ORDERED. ~ ie 10 Dated: _ August 19, 2020 wee Tm ae UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14