Alps Property & Casualty Insurance Company v. Kalicki Collier, LLP

Opinion

2 3 UNITED STATES DISTRICT COURT 4 DISTRICT OF NEVADA 5 * * * 6 ALPS PROPERTY & CASUALTY Case No. 3:19-cv-00709-MMD-CLB INSURANCE COMPANY, 7 ORDER Plaintiffs, 8 v. 9 KALICKI COLLIER, LLP; JOHN A. COLLIER; JAMES A. KALICKI; and 10 ROBIN RUMBAUGH, as Trustee of the Edith and James Harley Trust Dated 11 August 31, 1981, Trustee of the Edith and James Harley Trust – Survivor’s Trust, 12 and Trustee of the Edith and James Harley Trust – Residual Trust, 13 Defendants. 14 15 I. SUMMARY 16 This case is brought pursuant to the Court’s diversity jurisdiction and involves an 17 underlying insurance coverage dispute. Presently before the Court are two motions to 18 dismiss crossclaims brought by Defendant Robin Rumbaugh, in her capacity as Trustee 19 (“Trustee”) of (1) the Edith and James Harley Trust Dated August 31, 1981 (“Harley 20 Trust”), (2) the Edith and James Harley Trust – Survivor’s Trust (“Harley Survivor’s Trust”), 21 and (3) the Edith and James Harley Trust – Residual Trust (“Harley Residual Trust”) 22 (collectively, “Harley Trusts”). (ECF Nos. 26, 30.)1 In the first motion, Plaintiff ALPS 23 Property & Casualty Insurance Company (“ALPS”) moves to dismiss the crossclaims for 24 lack of subject matter jurisdiction (ECF No. 26). In the second motion, Defendants Kalicki 25 Collier LLP (“the Firm”), John A. Collier (“Collier”), and James A. Kalicki (“Kalicki”) 26 (collectively, “KC Defendants”) move to dismiss the crossclaims as time barred (ECF No. 27 /// 28 1The Court has considered the relevant responses (ECF Nos. 34, 38) and replies (ECF Nos. 40, 42). 2 consideration and will dismiss the crossclaims for lack of jurisdiction over them. The Court 3 will therefore deny the two pending motions as moot. 4 II. BACKGROUND 5 The following facts are taken from the complaint (ECF No.2) and crossclaims (ECF 6 No. 10 at 25–52) and certain attached exhibits. 7 In August 2019, Trustee asserted claims of professional malpractice against KC 8 Defendants (“Claim”). (ECF No. 2-3 at 30–44.) The Claim chiefly stems from KC 9 Defendants’ alleged failure to timely assert Harley Trusts’ claims against a non-party by 10 particularly failing to assess the time period for asserting such claims under California 11 Code of Civil Procedure (“CCP”) § 366.2(a). (Id.) The result was that the claims were found 12 to be time barred. (Id.) 13 ALPS commenced the instant action in this Court on November 27, 2019 14 (“Coverage Action”). (ECF No. 2.) ALPS seeks a declaration that the Lawyers Professional 15 Liability Insurance Policy No. ALPS18622-4 it issued to the Firm for the policy period 16 January 9, 2019 to January 9, 2020 (“Policy”) does not afford coverage to the KC 17 Defendants with respect to the Claim based on the language in the Policy. (Id. at 4–5, see 18 also 20–26.) ALPS asserts only two claims: (1) for declaration of non-coverage against all 19 Defendants and that there is no duty to defend or indemnify KC Defendants with respects 20 to the Claim; and (2) for reimbursement on any amount paid in defending the Claim. (Id. 21 at 27–35.) 22 In responding to the complaint on December 26, 2019, Trustee, inter alia, asserted 23 multiple crossclaims against KC Defendants predicated on alleged professional 24 negligence as previously asserted in the Claim. (ECF No. 10 at 25–52.) The crossclaims 25 are for: (1) breach of contract; (2) professional negligence—for legal malpractice; (3) 26 professional negligence—related to breach of accounting duties; and (4) declaratory 27 judgment—based on a theory of alter ego liability. (Id.) 28 /// 1 ALPS filed its motion to dismiss the crossclaims on January 16, 2020 (ECF No. 26) 2 || and KC Defendants filed their motion several days later (ECF No. 30). 3 |] UL FED. R. CIV. P. 12(B)(1) LEGAL STANDARD? = Rule 12(b)(1) of the Federal Rules of Civil Procedure allows defendants to seek 5 || dismissal of a claim or action for a lack of subject matter jurisdiction. Although the 6 || defendant is the moving party in a motion to dismiss brought under Rule 12(b)(1), the 7 || plaintiff is the party invoking the court's jurisdiction. As a result, the plaintiff bears the 8 || burden of proving that the case is properly in federal court. McCauley v. Ford Motor Co., 9 || 264 F.3d 952, 957 (9th Cir. 2001) (citing McNutt v. Gen. Motors Acceptance Corp., 298 10 || U.S. 178, 189 (1936)). That burden must be satisfied by a preponderance of the evidence. 11 || See Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014) (citation omitted). 12 Federal courts are courts of limited jurisdiction. Owen Equip. & Erection Co. v. 13 || Kroger, 437 U.S. 365, 374 (1978). “A federal court is presumed to lack jurisdiction in a 14 || particular case unless the contrary affirmatively appears.” Stock W., Inc. v. Confederated 15 || Tribes of the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989) (citation omitted). 16 || Thus, “federal subject matter jurisdiction must exist at the time an action is commenced.” 17 || Mallard Auto. Grp., Ltd. v. United States, 343 F. Supp. 2d 949, 952 (D. Nev. 2004) (citation 18 || omitted). 19 Here, ALPS raises a facial attack on the crossclaims. “In a facial attack, the 20 || challenger asserts that the allegations contained in a complaint are insufficient on their 21 || face to invoke federal jurisdiction.” Safe Air for Everyone v. Myer (“Safe Air’), 373 F.3d 22 || /// 23 || /// 24 /// 2 2While KC Defendants move for dismissal under Fed. R. Civ. P. 12(b)(6), the Court 26 || does not provide that standard here because the Court concludes that dismissal is warranted for lack of subject matter jurisdiction. The Court also recognizes that ALPS 97 || additionally moves for dismissal under Fed. R. Civ. P. 12(h)(3) (ECF No. 26 at 8) which provides that “[i]f the Court determines at any time that it lacks subject matter jurisdiction, 28 || the court must dismiss the action.” Fed. R. Civ. P. 12(h)(3).

2 be true and draws all reasonable inferences in favor of the plaintiff. Doe v. Holy See, 557 3 F.3d 1066, 1073 (9th Cir. 2009) (citations omitted). 4 IV. DISCUSSION 5 While ALPS is not a defendant relative to the crossclaims and thus may lack 6 standing to challenge them, the Court has the authority to sua sponte consider the matter 7 of its jurisdiction4 and will do so in this case. Here, Trustee asserts no independent 8 diversity jurisdiction over the crossclaims and instead solely asserts that the Court should 9 exercise jurisdiction over them pursuant to the federal supplemental jurisdiction statute— 10 28 U.S.C. § 1367. (ECF No. 10 at 25.) To be clear, the crossclaims are alleged against 11 non-diverse parties—Trustee and KC Defendants are both allegedly domiciled in Nevada. 12 In its motion to dismiss, ALPS argues that the crossclaims do not meet the relevant 13 considerations under § 1367(a) and are not authorized under Fed. R. Civ. P. 13(g), which 14 also applies to crossclaims. (ECF No. 26.) The Court’s sua sponte determination accords 15 with ALPS’s argument.5 16 The Court begins its analysis from the principle that federal courts are courts of 17 limited jurisdiction—and such jurisdiction may not be expanded or overcome by stipulation 18 of the parties. Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 19 2003) (per curiam). This Court therefore may exercise jurisdiction over crossclaims only 20 where there is an independent basis for jurisdiction—which has not been asserted here— 21 or they fall under the Court’s supplemental jurisdiction—which has been asserted. 22 /// 23 3“By contrast, in a factual attack, the challenger disputes the truth of the allegations 24 that, by themselves, would otherwise invoke federal jurisdiction.” Safe Air, 373 F.3d at 1039. 25 4See, e.g., United Inv’rs Life Ins. Co. v. Waddell & Reed Inc., 360 F.3d 960, 966 26 (9th Cir. 2004) (“[A] district court’s duty to establish subject matter jurisdiction is not contingent upon the parties' arguments.”). 27 5The Court also notes that KC Defendants appear to suggest that subject matter 28 jurisdiction is a non-issue while arguing that the case should be decided on the time-barred issue. (ECF No. 30 at 3 n.1.) 2 “over all other claims that are so related to claims in the action within such original 3 jurisdiction that they form part of the same case or controversy under Article III of the 4 United States Constitution.” Subsection (c) of the statute further provides that “district 5 courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) 6 if [, among other things,] the claim substantially predominates over the claim or claims 7 over which the district court has original jurisdiction.” 28 U.S.C. § 1367(c).6 Fed. R. Civ. 8 P. 13(g) particularly permits a crossclaim “if the claim arises out of the transaction or 9 occurrence that is the subject matter of the original action [(i.e., there is supplemental 10 jurisdiction)] . . . or if the claim relates to any property that is the subject matter of the 11 original action.”7 Notably, the Trustee disavows that the latter part of the disjunctive is at 12 issue. (ECF No. 34 at 21.) Thus, the Court’s analysis simply rests on whether the 13 crossclaims arise out of the same transaction or occurrence as the original claims. 14 Supplemental jurisdiction “is a doctrine of flexibility, designed to allow courts to deal 15 with cases involving pendent claims in the manner that most sensibly accommodates a 16 range of concerns and values.” Schneider v. TRW, Inc., 938 F.2d 986, 993 (9th Cir. 17 1991) (internal quotation and citation omitted). The Ninth Circuit applies a “logical 18 relationship” test “to determine whether two claims arise out of the same transaction or 19 occurrence.” Kuhn v. Account Control Tech., Inc., 865 F. Supp. 1443, 1446 (D. Nev. 1994) 20 /// 21 6While Trustee aptly points out that ALPS does not raise the exceptions in § 1367(c) 22 (e.g., ECF No, 34 at 9), the Court considers the section as part of its sua sponte determination. 23 7“[T]he general rule [is] that cross-claims are permissive, not compulsory . . . 24 [and] claims for contribution and indemnity contingent upon the outcome of another claim have not been placed in the compulsory category.” Hall v. Gen. Motors Corp., 647 F.2d 25 175, 184 (1980) (citation omitted); see also Peterson v. Watt, 666 F.2d 361, 363 (9th Cir. 1982) (citing Fed. R. Civ. P. 13(g)) (“[C]ross-claims are permissive rather than 26 mandatory.”). Logically then the claims asserted in an underlying liability action would not be compulsory in an action concerning indemnity. Furthermore, this means that 27 “crossclaims are not waived if a party fails to assert them and they can be pursued in a separate action.” Interlabservice, OOO v. Illumina, Inc., No.: 15cv2171-KSC, 2017 WL 28 4217133, at *4 (S.D. Cal. Sept. 20, 2017) (citing Peterson, 666 F.2d at 363). 2 flexible approach to Rule 13 problems attempts to analyze whether the essential facts of 3 the various claims are so logically connected that considerations of judicial economy and 4 fairness dictate that all of the issues be resolved in one lawsuit.” Pochiro, 827 F.2d at 1249 5 (quotation omitted); see also Ionian Corp. v. Country Mut. Ins. Co., 836 F. Supp. 2d 1173, 6 1187 (D. Or. 2011) (applying the “logical relationship” test in the crossclaim 7 context); 6 CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, 8 FEDERAL PRACTICE & PROCEDURE: CIVIL § 1431 (3d ed. 2010 update) (the 9 “transaction or occurrence standard is expansive and requires 10 a logical relationship between the crossclaim and the original action or counterclaim”); 11 Interlabservice, OOO v. Illumina, Inc., No. 15cv2171-KSC, 2017 WL 4217133, at *5 (S.D. 12 Cal. Sept. 20, 2017) (“[A] logical relationship between claims exists where separate trials 13 on each of the claims would involve a substantial duplication of effort and time by the 14 parties and the courts.”) (internal quotations and citation omitted). 15 Trustee argues that the claims and crossclaims are of a “common nucleus of 16 operative facts” and that the latter arise from the same transaction or occurrence as the 17 Coverage Action in gist because ALPS’s theory for denying coverage purportedly overlaps 18 with the Trustee’s underlying negligence claims. (E.g., ECF No. 34 at 9–10, 16, 18.) 19 Specifically, Trustee claims that both set of claims are grounded on what and when KC 20 Defendants knew about the potential Claim based upon the failure to recognize the statute 21 of repose in CCP § 336.2(a). (Id. at 6, 10.) The Court disagrees with Trustee. 22 Trustee’s argument skews the Court’s analysis because, as noted, the Court’s 23 consideration is simply whether the crossclaims are so logically connected to ALPS’s 24 Coverage Action “that considerations of judicial economy and fairness dictate that all of 25 the issues be resolved in one lawsuit.” Kuhn, 865 F. Supp. at 1446. While the Coverage 26 Action is undisputedly precipitated by the Trustee’s Claim against KC Defendants, the 27 Court does not find that the two set of claims here are logically or substantially connected 28 to give rise to supplemental jurisdiction. Instead, the Court finds that the allegations in the 2 factual and legal determinations than ALPS’s request for declaratory relief. As such, they 3 do not arise out of the same transaction or occurrence. 4 Here, ALPS specifically seeks a declaration that the Policy does not afford 5 coverage for KC Defendants and that ALPS is not required to defend the Claim or 6 indemnify KC Defendants for the same. (ECF No. 2 at 4–5, 20–36.) ALPS’s request is 7 allegedly based on, among other things, the Policy’s prior knowledge conditions precedent 8 and exclusion, which ALPS argues applies to preclude coverage for the Claim. (Id.) Thus, 9 resolution of ALPS’s claim will depend on the interpretation and application of the Policy 10 to determine whether ALPS is obligated to defend or indemnify KC Defendants. 11 On the other hand, the determinations related to the crossclaims are distinctly 12 sounded in allegations of negligence (see generally ECF No. 10 at 25–52). The 13 crossclaims would precisely require the Court to chiefly examine whether KC Defendants 14 owed certain duties to the Trustee and breached applicable standards of care. Said 15 differently, the crossclaims engender issues that are completely discrete from, and would 16 likely predominate, the key issue of KC Defendants’ prior knowledge at issue in the 17 Coverage Action. The crossclaims would therefore require, at minimum, the consideration 18 of additional evidence from that required to determine ALPS’s Coverage Action. By 19 extension, there would be greater time and effort involved in resolving the crossclaims 20 despite them being significantly unrelated to ALPS’s claims. 21 Accordingly, the Court finds the crossclaims are largely tangential to the Coverage 22 Action. That is, the two set of claims are not so logically related that considerations of 23 judicial economy and fairness dictate that all of the issues between them be resolved in 24 one lawsuit. Cf. Podiatry Ins. Co. of Am. v. Falcone, Civ. A. No. 3:10-1106, 2011 WL 25 1750708, at *3 (S.D.W. Va. Feb. 25, 2011) (“Whether or not [claimant’s] injuries stemmed 26 from . . . malpractice has no bearing on whether [the professional liability insurer] can be 27 held responsible” under its policy.); W. World Ins. Co. v. David Halphin, No. 12-1397-CV- 28 DGK, 2013 WL 3665251, at *3 (W.D. Mo. July 12, 2013) (“[T]here is little overlap of factual 1 || or legal issues between the declaratory judgment action and [claimant’s] crossclaim for 2 || negligence.”). Therefore, considering its limited jurisdiction, the Court finds that it cannot 3 || exercise supplemental jurisdiction over the crossclaims and will sua sponte dismiss them 4 || from this case. The two pending motions are thereby rendered moot. 5 || V. CONCLUSION 6 The Court notes that the parties made several arguments and cited to several cases 7 || not discussed above. The Court has reviewed these arguments and cases and determines 8 || that they do not warrant discussion as they do not affect the outcome of the issues before Q || the Court. 10 It is therefore ordered that the crossclaims are dismissed from this action because 11 || the Court finds sua sponte that it lacks jurisdiction over them. 12 It is further ordered that the pending motions to dismiss the crossclaims (ECF Nos. 13 || 26, 30) are denied as moot. 14 DATED THIS 10° day of April 2020. □□□ 16 ZL MIRANDA M. DU 17 CHIEF UNITED STATES DISTRICT JUDGE 18 19 20 21 22 23 24 25 26 27 28