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Camico Mutual Insurance Co. v. McCoy Foat & Co.

United States District Court, D. Oregon

September 6, 2018

CAMICO MUTUAL INSURANCE COMPANY, Plaintiff,
v.
McCOY FOAT & COMPANY, CPAs, P.C., an Oregon professional corporation; MARK FOAT, an individual; AMY PATE, an individual; ANTHONY PATE, an individual; FRED STOCKTON, an individual; and CHRISTY STOCKTON, an individual, Defendants.

          Curt H. Feig NICOLL BLACK & FEIG, PLLC Attorney for Plaintiff

          W. Blake Mikkelsen Michael E. Farnell PARSONS FARNELL & GREIN, LLP Attorneys for Defendants McCoy Foat & Co. and Mark Foat

          J. Kurt Kraemer McEWEN GISVOLD LLP Attorney for Defendants Amy & Anthony Pate and Fred & Christy Stockton

          OPINION & ORDER

          MARCO A. HERNANDEZ, UNITED STATES DISTRICT JUDGE.

         Plaintiff Camico Mutual Insurance Company brings this declaratory judgment action against its insured Defendant McCoy Foat & Company ("MFC"), a professional accounting firm, as well as the following individuals: Mark Foat, Amy Pate, Anthony Pate, Fred Stockton, and Christy Stockton. Foat, alleged in the Complaint to be "an individual," is apparently one of three partners of MFC. See Compl. ¶¶ 3, 13. The remaining Defendants ("the Pate and Stockton Defendants") are individuals who are preparing to file suit in state court against MFC and Foat. Thus far, the Pate and Stockton Defendants have drafted a complaint in that case ("the Underlying Complaint" or "the Underlying Lawsuit") but have not yet filed it. MFC and Foat, however, have sought coverage for the defense of the Underlying Lawsuit and for payment of the claims in the Underlying Complaint, from Plaintiff. Plaintiff seeks a declaratory judgment that its policy does not afford coverage for the claims asserted against Foat and MFC as set forth in the Underlying Complaint and that as a result, Plaintiff has no duty to defend MFC and Foat in connection with those claims. Plaintiff also brings an alternative claim for reformation.

         The Pate and Stockton Defendants move to dismiss the claims against them, arguing that there is no actual controversy between them and Plaintiff. I deny the motion.

         STANDARDS

         A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In evaluating the sufficiency of a complaint's factual allegations, the court must accept all material facts alleged in the complaint as true and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012). However, the court need not accept unsupported conclusory allegations as truthful. Holden v. Hagopian, 978 F.2d 1115, 1121 (9th Cir.1992); see also Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) ("we do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations") (internal quotation marks and alterations omitted).

         DISCUSSION

         The Pate and Stockton Defendants argue that there is no actual controversy between them and Plaintiff. They observe that the Complaint mentions them only twice: first, in identifying them as parties, and second, in describing the allegations in the Underlying Complaint. Compl. ¶¶ 47, 9-15, ECF 1. They contend that the coverage dispute at issue in the case exists only between Plaintiff and its insured and the allegations describing that dispute do not mention them. Id. ¶¶ 17-24. Neither the declaratory judgment claim nor the reformation claim refer to any controversy between Plaintiff and the Pates or Stocktons. Id. ¶¶ 25-36. The declaratory judgment claim refers only to the rights and obligations of Plaintiff and its insured and the reformation claim refers only to Plaintiff's and its insured's intentions under the insurance policy at issue. Id. Additionally, the Pate and Stockton Defendants note, the Underlying Lawsuit has not yet been filed. Presently, it is an unfiled draft of a state court complaint and nothing more. Based on these facts, the Pate and Stockton Defendants argue that there is no basis to conclude that an actual controversy exists between the Pate and Stockton Defendants and Plaintiff. As a result, they argue that there is no proper claim asserted against them and they should be dismissed from the case. Finally, they argue that the possibility of duplicative litigation with inconsistent factual determinations requires this Court to exercise its discretion and dismiss them from this case.

         Plaintiff seeks a declaration of the parties' rights under the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02. That Act provides: "In 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). The Declaratory Judgment Act confers on federal courts "unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995); see also Am. Int'l Specialty Lines Ins. Co. v. Remtech, Inc., No. 3:11-cv-93-AA, 2011 WL 13254507, at *1 (D. Or. Aug. 15, 2011) ("[D]istrict courts may exercise their discretion to resolve matters of insurance coverage in declaratory actions.").

         The "actual controversy" requirement is satisfied where the plaintiff alleges facts showing a substantial controversy between parties with adverse legal interests that is sufficiently immediate to warrant the issuance of declaratory relief. Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941). Generally, a case or controversy is found when an insurer brings a declaratory judgment action against its insured regarding the insurer's duty to defend and indemnify. See, e.g., Am. States Ins. Co. v. Kearns, 15 F.3d 142, 144 (9th Cir. 1994). Statutory jurisdictional requirements are also met in this case because there is complete diversity between the parties and the amount in controversy is more than $75, 000. Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1222-23 (9th Cir. 1988) (en banc) (lawsuits seeking federal declaratory relief "must first present an actual case or controversy within the meaning of Article III, section 2 of the United States Constitution" and "must also fulfill statutory jurisdictional prerequisites"); 28 U.S.C. § 1332(a).

         The issue here, however, is not whether there is a case or controversy between Plaintiff and its insured but whether such case or controversy exists between Plaintiff and the third-party claimants in the Underlying Lawsuit. Cases recognize that third-party claimants are proper parties in declaratory relief actions between an insurer and its insured to determine the scope of insurance coverage. Navigators Ins. Co. v. K & O Contracting, LLC, No. 3:12-cv-01324-ST, 2013 WL 1194722, at *2 (D. Or. Jan. 10, 2013) ("There is no doubt that a third-party claimant is a proper party to a declaratory relief action between the insurer and its insured to determine the scope of insurance coverage") (citing Md. Cas. Co., 312 U.S. at 273-74; Franklin Life Ins. Co. v. Johnson, 157 F.2d 653, 658 (10th Cir. 1946); State Farm Fire & Cas. Co. v. Reuter, 294 Or 446, 450-53, 657 P.2d 1231, 1233-34 (1983) (agreeing with Franklin Life Ins. Co.); State Farm Fire & Cas. Co. v. Teyema, No. Civ. 05-201-ST, 2005 WL 2244195, at *2-3 (Sept. 15, 2005) (following Reuter )), adopted by J. Mosman, 2013 WL 1194715 (D. Or. Mar. 21, 2013).

         In Reuter, the Oregon Supreme Court "agree[d] with the Tenth Circuit's discussion of the propriety of joining potential third party claimants[.]" 294 Or. at 450, 657 P.2d at 1233. Quoting ...


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