California State Grange v. Carolina Casualty Ins. Co. ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 CALIFORNIA STATE GRANGE, a No. 2:22-cv-00777 WBS DB California corporation, 13 Plaintiff, 14 MEMORANDUM AND ORDER RE: v. DEFENDANT’S MOTION TO DISMISS 15 CAROLINA CASUALTY INSURANCE 16 COMPANY, an Iowa corporation, 17 Defendant. 18 19 ----oo0oo---- 20 This is an action brought by a judgment creditor to 21 recover against the judgment debtor’s insurer. Defendant moves 22 to dismiss plaintiff’s complaint (Docket No. 1) for failure to 23 state a claim pursuant to Federal Rule of Civil Procedure 24 12(b)(6). (Docket No. 6.) 25 I. Factual and Procedural Background 26 This action arises from an underlying action in the 27 Butte County California Superior Court captioned California State 28 Grange v. Chico Community Guilds, Case No. 20-cv-00152 (Butte 1 Cnty. Superior Ct.) (“the Butte County action”). (Compl. ¶ 19.) 2 That action concerned a dispute over the ownership of real and 3 personal property claimed by Chico Community Guilds (“Chico 4 Guilds”). (Id. ¶ 20.) The complaint in that case contained 5 several causes of action including Cancellation of Deed and Quiet 6 Title, Slander of Title, and Conversion. (Id., Ex. 2, Butte 7 County Compl. (“Butte County Compl.”) (Docket No. 1-2).) 8 Judgment was entered in favor of plaintiff in the underlying 9 action. (Id. ¶ 22.) 10 An amended judgment in the Butte County action was 11 entered on May 24, 2021 and plaintiff was awarded, in relevant 12 part, the following: (1) “Damages for conversion in the amount of 13 $80,697.68 plus interest accrued at the rate of (10) percent per 14 annum from and after January 12, 2020;” (2) “$1,945.49 in costs;” 15 (3) “$9,307.87 in prejudgment interests” on the conversion 16 damages; and (4) “$23,167.50 against [Chico Guilds] as damages” 17 “for slander of title, which represents the attorney’s fees 18 awarded to plaintiff in connection with that cause of action.” 19 (Id. ¶ 26; Id., Ex. 4, Am. J. (“Am. J.”) ¶¶ 13-16 (Docket No. 1- 20 4).) On March 8, 2022, the California Court of Appeal dismissed 21 Chico Guild’s appeal of the judgment. (Compl. ¶ 27.) 22 Defendant sold Management Liability Policy No. DCP 23 1776783-P1 (“the policy”)1 to the insured entity, Chico Community 24 1 The policy is not attached as an exhibit to the 25 complaint but is submitted as an exhibit to defendant’s motion to dismiss. (Decl. of Carol Threlkeld, Ex. 1, Policy (“Policy”) 26 (Docket No. 6-4).) The policy is incorporated by reference into 27 the complaint because “plaintiff refers extensively to” it and it “forms the basis of plaintiff’s claim.” See U.S. v. Ritchie, 342 28 F.3d 903, 908 (9th Cir. 2003) (“[I]ncorporation by reference may 1 Guilds (“Chico Guilds”). (Id. ¶ 14.) The policy defines a 2 “claim” in part as a “civil . . . proceeding for monetary or non- 3 monetary relief filed against an Insured2 arising from a Wrongful 4 Act which is commenced by: (a) service of a complaint or similar 5 pleading . . . .” (Policy at 28 (emphasis in original).) The 6 policy states that it covers “Damages . . . arising from any 7 Claim first made against the Insureds during the Policy Period.” 8 (Id.) Damages are defined as: (1) “a monetary judgment, award or 9 settlement; or” (2) “pre-judgment interest and post-judgment 10 interest.” (Id. at 29.) However, under the policy damages do 11 not include: 12 “d. disgorgement or restitution payment by or on behalf of any Insured, including disgorgement or 13 restitution of amounts retained, obtained, or 14 acquired by an Insured and any settlement payment arising from any actual or alleged amount that an 15 Insured improperly retained, obtained or acquired . . . .” 16 17 (Id.) 18 Based on the judgment awarded in the Butte County 19 action, plaintiff brought this action alleging the following 20 claims: (1) declaratory relief that defendant has a duty under 21 the policy to indemnify Chico Guilds and pay the judgment; (2) 22 breach of contract for not fulfilling the judgment under the 23 policy; and (3) breach of the implied covenant of good faith and 24 25 apply, for example, when a plaintiff’s claim about insurance coverage is based on the contents of a coverage plan . . . .”). 26 27 2 Terms quoted from the policy which are in bold are defined terms within the policy. 28 1 fair dealing. (See Compl.)3 The court analyzes the claims 2 below. 3 II. Claim One: Declaration of Duty to Indemnify 4 A. Conversion and Associated Interest 5 Defendant argues that it does not have a duty to 6 indemnify Chico Guilds for the “damages for conversion” and pre- 7 judgment interest on the conversion damages because the policy 8 does not cover restitution. The court agrees. 9 Plaintiff’s conversion claim in the Butte County action 10 alleged that Chico Guilds failed to return personal property, 11 including “one or more bank accounts and the funds held therein” 12 to which plaintiff was entitled. (See Butte County Compl. ¶ 105- 13 10.) The judgment in the Butte County action stated that 14 plaintiff was the rightful owner of the funds in two bank 15 accounts and Chico Guilds was directed to immediately return the 16 funds. (Am. J. ¶¶ 3, 6.) The parties agree that $80,697.68 was 17 the exact sum of the funds in the two accounts. (See Def.’s 18 Reply at 4-5 (Docket No. 13).) 19 For the conversion claim, plaintiff specifically sought 20 judgment: (1) “for the value of the property converted;” (2) “for 21 interest at the legal rate on the foregoing sum;” and (3) “for 22 punitive damages.” (Butte County Compl. p. 20, ¶¶ 11-13.) 23 Plaintiff now argues that the “[d]amages for conversion in the 24 amount of $80,697.68” are separate and apart from the “value of 25 the property.” (Pl.’s Opp’n at 7 (Docket No. 10).) However, 26 3 Plaintiff requests that the court take judicial notice 27 (Docket No. 10-1) of two demand letters sent by plaintiff and defendant’s responses. The court does not rely on these 28 documents, and therefore the request is denied as moot. 1 plaintiff never sought damages in excess of the property that 2 Chico Guilds converted, except for punitive damages which were 3 not awarded. (See Am. J.) 4 California Civil Code section 3336 provides that there 5 are two methods to calculate the detriment caused by the wrongful 6 conversion of personal property: (1) “the value of the property 7 at the time of conversion, with the interest from that time, or 8 [(2)] an amount sufficient to indemnify the party injured for the 9 loss which is the natural, reasonable and proximate result of the 10 wrongful act.” Section 3336 also allows plaintiffs to be “fairly 11 compensated for the time and money properly expended in pursuit 12 of the property.” Cal. Civ. Code § 3336. 13 Here, the amount of money in the accounts was easily 14 determinable, and the state court did not make any determination 15 relevant to the “amount sufficient to indemnify” plaintiff for 16 the loss. Plaintiff also did not seek, nor did the state court 17 include in its judgment, compensation for the time and money 18 expended to recover the property. (See Butte County Compl.; Am. 19 J.) 20 As noted by the California Supreme Court, “it is well 21 established that one may not insure against the risk of being 22 ordered to return money or property that has been wrongfully 23 acquired. Such orders do not award ‘damages’ as that term is 24 used in insurance policies.” Bank of the W. v. Superior Ct., 2 25 Cal. 4th 1254, 1266 (1992). Moreover, under plaintiff’s theory, 26 if plaintiff were to be restored ownership of the funds in the 27 two accounts and recover an additional sum in the same amount 28 from defendant, it would constitute double recovery rendering a 1 profit for plaintiff. 2 “The fundamental distinction” between restitution and 3 damages is not “the label,” “but whether the claim seeks to 4 recover only money or property that the insured wrongfully 5 acquired.” Unified W. Grocers, Inc. v. Twin City Fire Ins. Co., 6 457 F.3d 1106, 1115 (9th Cir. 2006). Here, the complaint does 7 not allege that the judgment for “damages for conversion in the 8 amount of $80,697.68,” plus interest accrued is anything other 9 than money or property the insured wrongfully acquired –- a 10 restitution payment. See id.; (Am. J. ¶ 13.) The Butte County 11 judgment did not award “damages” for the conversion claim, or for 12 any claim, including slander of title. 13 Because the $80,697.98 for the conversion claim is not 14 covered by the policy, plaintiff also cannot recover the 15 $9,307.87 in prejudgment interest for that claim. See Mirpad, 16 LLC v. Cal. Ins. Guarantee Ass’n., 132 Cal. App. 4th 1058, 1066 17 n.12 (2d Dist. 2005) (“In light of our conclusion that there was 18 no coverage for the claims asserted in the underlying actions, we 19 have no need to reach or discuss the . . . plaintiff’s 20 entitlement to prejudgment interest.”); see also State Farm Gen. 21 Ins. Co. v. Mintarsih, 175 Cal. App. 4th 274, 289 (2d Dist. 2009) 22 (finding no obligation to pay post-judgment interest when there 23 was no coverage for the damages). 24 B. Attorney’s Fees for Slander of Title 25 The judgment in the Butte County action also awarded 26 $23,167.50 in attorney’s fees for plaintiff’s slander of title 27 action based upon Chico Guilds improperly transferring a deed to 28 its name. (Butte County Compl. ¶¶ 104-10.) For this claim, 1 plaintiff sought: (1) “general damages in an amount according to 2 proof;” (2) “punitive damages;” and (3) “attorney’s fees incurred 3 in removing the cloud on” the title. (Id. p. 22, ¶¶ 8-10.) The 4 judgment specifically did not award plaintiff general or punitive 5 damages for the slander of title claim, but only awarded 6 attorney’s fees and voided the illegitimate deed. (See Compl. ¶ 7 26; Am. J. ¶ 9.) 8 The policy states that it covers damages for any 9 ‘wrongful act’ which is defined to include ‘personal injury’, 10 which includes the “unauthorized use of title.” (Policy at 28- 11 29.) Slander of title is not the unauthorized use of title, 12 rather “[s]lander of title occurs when there is an unprivileged 13 publication of a false statement which disparages title to 14 property and causes pecuniary loss.” Stamas v. Cnty. of Madera, 15 795 F. Supp. 2d 1047, 1067 (E.D. Cal. 2001) (citing Stalberg v. 16 W. Title Ins. Co., 27 Cal. App. 4th 925, 929 (6th Dist. 1994)). 17 “The tort of slander of title is meant to protect against 18 frivolous title disputes that interfere with the salability of 19 property.” Westfield Ins. Co. v. TWT, Inc, 723 F. Supp. 492, 496 20 (N.D. Cal. 1989). Accordingly, plaintiff has not alleged facts 21 to establish that Chico Guilds was covered for a slander of title 22 claim. 23 The parties agree that attorney’s fees are covered by 24 the policy to the extent the claim against the insureds is 25 covered. (Policy at 29.) However, because the policy does not 26 cover slander of title claims, it also does not cover attorney’s 27 fees on those claims. 28 For the foregoing reasons, defendant’s motion to 1 dismiss plaintiff’s first claim for declaratory relief will be 2 granted. 3 III. Claim Two: Breach of Contract 4 Plaintiff’s second claim for breach of contract is 5 premised on defendant’s alleged duty to indemnify the judgment 6 from the Butte County action. Because there is no duty to 7 indemnify, as discussed above in section II, Claim Two of the 8 complaint does not sufficiently allege a breach of contract claim 9 and it will be dismissed. 10 IV. Claim Three: Breach of the Implied Covenant of Good Faith and Fair Dealing 11 12 Plaintiff’s third claim for breach of the implied 13 covenant of good faith and fair dealing is also based on 14 defendant’s alleged failure to indemnify Chico Guilds for the 15 judgment from the Butte County action. As discussed, defendant 16 does not have a duty to indemnify, and therefore did not breach 17 the implied covenant. See Waller v. Truck Ins. Exch., Inc., 11 18 Cal. 4th 1, 36 (1995) (“It is clear that if there is no potential 19 for coverage . . . there can be no action for breach of the 20 implied covenant of good faith and fair dealing because the 21 covenant is based on the contractual relationship between the 22 insured and the insurer.”). Plaintiff’s third claim will be 23 dismissed. 24 V. Leave to Amend 25 “Valid reasons for denying leave to amend include undue 26 delay, bad faith, prejudice, and futility.” Cal. Architectural 27 Bldg. Prods. v. Franciscan Ceramics, 818 F.2d 1466, 1472 (9th 28 ene nn DEI IEE eI OO SN ID EE 1 Cir. 1987). While leave to amend must be freely given, the court 2 is not required to allow futile amendments. See DeSoto v. Yellow 3 Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992). 4 Plaintiff does not propose, nor is the court aware of, 5 any factual allegations that could remedy the complaint. The 6 court will not grant plaintiff leave to amend because the 7 complaint “could not possibly be cured by the allegation of other 8 facts,” and therefore, amendment would be futile. Nunes v. 9 Ashcroft, 375 F.3d 805, 808 (9th Cir. 2004). 10 IT IS THEREFORE ORDERED that defendant’s motion to 11 dismiss (Docket No. 6) be, and the same hereby is, GRANTED 12 | without leave to amend.? 13 The Clerk is instructed to close this case. 14 | Dated: July 12, 2022 yd . 4k. 2 15 WILLIAM B. SHUBB 16 UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 I] 4 Because this case is dismissed, plaintiff’s motion for 28 | summary judgment (Docket No. 8) is MOOT.