Associated Industries Insurance Company Inc v. Cole Wathen Leid & Hall PC

• Court: District Court, W.D. Washington
• Decided: July 2, 2020
• Docket: 2:20-cv-00014
• Status: Unknown

Opinion

HONORABLE RICHARD A. JONES 1

6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 ASSOCIATED INDUSTRIES INSURANCE 9 COMPANY, INC., a foreign insurer, 10 Case No. 2:20-cv-00014-RAJ Plaintiff,

11 ORDER v.

12 COLE | WATHEN | LEID | HALL, P.C., a 13 Washington Professional Service Corporation, 14 Defendant. 15 16 I. INTRODUCTION 17 Before the Court are two motions. For the reasons below, Plaintiff’s Motion for 18 Partial Summary Judgment Seeking a Declaration of No Coverage (Dkt. # 11) is 19 DENIED without prejudice, and Defendant’s Motion to Continue Plaintiff’s Motion for 20 Partial Summary Judgment (Dkt. # 21) is GRANTED in part. 21 II. BACKGROUND 22 This case, at bottom, is about a car crash, an unfiled answer, and a malpractice 23 insurance policy. In January 2016, Denis Vladimirovich Sukhoterin allegedly crashed 24 into Beth Marie Ling’s car, injuring Ms. Ling’s hip. Dkt. # 13-4 at 3-4.1 She sued Mr. 25

26 1 The parties have not attached the complaint filed in Ling v. Sukhoterin, No. 18CV00714 (Or. Cir. Ct. May 24, 2018), so the Court must rely on Plaintiff’s motion to set aside 27 default judgment filed in that case for background information. 1 Sukhoterin and the owner of the car, Mariya Timofeyeva, in Oregon state court. Ling v. 2 Sukhoterin, No. 18CV00714 (Or. Cir. Ct. May 24, 2018). Defendant COLE | WATHEN | 3 LEID | HALL, P.C. (“CWLH”), a Seattle based law firm, was retained by an insurance 4 company to represent Mr. Sukhoterin and Ms. Timofeyeva. Dkt. # 12-1 at 2. 5 According to CWLH, it intended to defend and litigate the case. Early on, it had 6 informed Ms. Ling’s counsel that it was representing Mr. Sukhoterin and Ms. 7 Timofeyeva. Dkt. # 13-5 at 12-13. It had even engaged in a “lengthy litigation and 8 discovery conference,” among other numerous communications, with opposing counsel. 9 Id. at 3-5. Despite those informal communications, Ms. Ling’s counsel notified CWLH 10 that, if it failed to formally appear in the action or respond to the complaint, he would 11 seek a default judgment against it. Id. at 31-32. As a result, CWLH drafted an answer 12 and directed a staff member to file it. Id. at 4. But it would later learn, only after it 13 received notice that default judgment was actually entered against it, that the answer was 14 not in fact filed. Id. at 4-7. It turns out that Ms. Ling’s counsel had indeed pursued and 15 obtained a default judgment, ex parte, after CWLH failed to file its answer. Id. at 5-6. 16 CWLH moved to set aside the default judgment. Dkt. # 13-4. It was denied. Dkt. 17 # 13-6. And it appealed. Dkt. # 13-7 at 2-6. 18 A. The Associated Industries Policy 19 Awaiting the appeal, CWLH sent a letter to its professional liability insurer, 20 Plaintiff Associated Industries Insurance Company, Inc. (“Associated Industries”), 21 notifying them of the above events and tendering a claim for coverage. Dkt. # 12-1. 22 Ultimately, Associated Industries denied coverage because CWLH knew of a “wrongful 23 act” before the policy period began, an exclusion in the underlying insurance policy. 24 Dkt. # 12-2; see also Dkt. # 12-4. 25 CWLH’s policy with Associated Industries was for the period of September 26, 26 27 1 2018, to September 28, 2019.2 Dkt. # 12-2 at 3. Under the policy, CWLH was to be 2 covered so long as “the Insured ha[d] no knowledge of such Wrongful Act prior to the 3 Inception Date of th[e] Policy.” Id. at 3-4. “Inception Date” meant September 26, 2018, 4 the start of the policy period. Id. at 6. “Wrongful Act” meant “any actual or alleged 5 negligent act, error, or omission committed or attempted in the rendering or failing to 6 render Professional Services.” Id. at 4. CWLH was not covered under the policy, 7 Associated Industries reasoned, because it knew of a Wrongful Act (failure to timely file 8 the answer) before the Inception Date (CWLH first learned on June 4, 2018, that the 9 answer was not filed, more than three months before the Inception Date of September 26, 10 2018). Id. at 6. 11 B. Parallel Proceeding 12 After it was denied coverage, CWLH filed a lawsuit in King County Superior 13 Court, which was later removed to this Court: Cole Wathen Leid Hall, PC v. Associated 14 Industries Insurance Co, Inc., No. 2:19-cv-02097-RAJ (W.D. Wash. removed Dec. 30, 15 2019) (hereinafter Cole Wathen). At the time, Associated Industries was not named as a 16 defendant in Cole Wathen, so it filed this suit days later. Eventually, CWLH would 17 amend its complaint in that case to add Associated Industries. Amended Complaint, Cole 18 Wathen (Dkt. # 16). In Cole Wathen, CWLH asserts several claims against Associated 19 Industries, including breach of contract, bad faith, violations of the Insurance Fair 20 Conduct Act, and negligent claim handling. Id. In this action, on the other hand, 21 Associated Industries seeks declaratory judgment on and rescission of the same insurance 22 policy in Cole Wathen. Dkt. # 1 at 6-8. 23 Just over two months after filing its complaint here, Associated Industries moved 24 for partial summary judgment. Dkt. # 11. It seeks a declaration that it does not owe 25

26 2 Mary Prugh’s declaration claims to attach the policy as Exhibit 7, but it appears that the wrong exhibit was attached. The Court will rely on the parties’ representations about the 27 policy and the portions of the policy that they have excerpted. 1 coverage for CWLH’s alleged malpractice. Id. at 1. CWLH responded, Dkt. # 17, and 2 filed a motion under Rule 56(d) to continue the summary judgment motion so that it may 3 conduct discovery, Dkt. # 21. This Order addresses both motions. 4 III. LEGAL STANDARD 5 Summary judgment is appropriate if there is no genuine dispute as to any material 6 fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). 7 The moving party bears the initial burden of demonstrating the absence of a genuine issue 8 of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving 9 party will have the burden of proof at trial, it must affirmatively demonstrate that no 10 reasonable trier of fact could find other than for the moving party. Soremekun v. Thrifty 11 Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). On an issue where the nonmoving party 12 will bear the burden of proof at trial, the moving party can prevail merely by pointing out 13 to the district court that there is an absence of evidence to support the non-moving party’s 14 case. Celotex Corp., 477 U.S. at 325. If the moving party meets the initial burden, the 15 opposing party must set forth specific facts showing that there is a genuine issue of fact for 16 trial to defeat the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). The 17 court must view the evidence in the light most favorable to the nonmoving party and draw 18 all reasonable inferences in that party’s favor. Reeves v. Sanderson Plumbing Prods., 530 19 U.S. 133, 150-51 (2000). 20 IV. DISCUSSION 21 Associated Industries moves for a declaration that it owes no coverage for 22 CWLH’s alleged malpractice. Dkt. # 11 at 1. In response, CWLH seeks to dismiss the 23 case under the first-to-file rule. Dkt. # 17 at 7-15. It says that this case, filed January 3, 24 2020, was filed after Cole Wathen, filed December 10, 2019, and should be dismissed in 25 the interest of federal comity. Id. CWLH made a nearly identical argument in Cole 26 Wathen, which the Court rejected. Order at 4, Cole Wathen (Dkt. # 44). The Court 27 reiterates here: “Both [this case and Cole Wathen] were filed in this district, and both 1 cases are now before one judge. Thus, the need for comity is diminished, and the first-to- 2 file rule does not apply.” Id.; see also Amezquita v. Target Corp., No. 5:18-cv-01109- 3 JVS-SP, 2018 WL 6164293, at *3-4 (C.D. Cal. July 9, 2018) (compiling cases). The 4 Court rejects CWLH’s first-to-file argument here as well and will not dismiss this case on 5 this ground. 6 Next, CWLH argues that it needs to conduct discovery and that the motion for 7 partial summary judgment should be continued accordingly. Id. at 15; Dkt. # 21. The 8 Court agrees; summary judgment is premature. Although judges have “discretion to 9 disallow discovery when the non-moving party cannot yet submit evidence supporting its 10 opposition, the Supreme Court has restated the rule as requiring, rather than merely 11 permitting, discovery ‘where the nonmoving party has not had the opportunity to 12 discover information that is essential to its opposition.’” Metabolife Int’l, Inc. v. 13 Wornick, 264 F.3d 832, 846 (9th Cir. 2001) (citing Anderson v. Liberty Lobby, Inc., 477 14 U.S. 242, 250 n.5 (1986)). In this case, Associated Industries moved for partial summary 15 judgment just over two months after it filed its complaint and before CWLH could obtain 16 discovery. Dkt. # 11; Dkt. # 22 ¶¶ 3-4. And while Associated Industries’s motion is 17 technically permissible under the federal rules, Ninth Circuit precedent counsels against 18 granting such motions if the party opposing summary judgment has not had an 19 opportunity to pursue discovery. “Where . . . a summary judgment motion is filed so 20 early in the litigation, before a party has had any realistic opportunity to pursue discovery 21 relating to its theory of the case, district courts should grant any Rule 56 [(d)] motion 22 fairly freely.” Burlington N. Santa Fe R.R. Co. v. Assiniboine & Sioux Tribes of Fort 23 Peck Reservation, 323 F.3d 767, 773 (9th Cir. 2003). 24 To obtain a continuance under Rule 56(d), the nonmoving party must show “by 25 affidavit or declaration that, for specified reasons, it cannot present facts essential to 26 justify its opposition.” Fed. R. Civ. P. 56(d). The declaration must be timely and must 27 specifically identify relevant information where there is some basis for believing the 1 information sought actually exists. Emp’rs Teamsters Local Nos. 175 & 505 Pension 2 Trust Fund v. Clorox, 353 F.3d 1125, 1129 (9th Cir. 2004). If a court concludes 3 additional discovery is warranted, it may “(1) defer considering the motion or deny it; 4 (2) allow time to obtain affidavits or declarations or to take discovery; or (3) issue any 5 other appropriate order.” Fed. R. Civ. P. 56(d). 6 Here, CWLH meets the requirements for relief under Rule 56(d). First, CWLH’s 7 request is timely. It first raised the request for discovery in its response to Associated 8 Industries’s motion for partial summary judgment. Dkt. # 17 at 15. And just four days 9 later it filed a separate motion seeking the same relief. Dkt. # 21. Second, in support of 10 its request, CWLH submits a declaration of its counsel, Rick J. Wathen, which identifies 11 with adequate specificity areas of relevant discovery. Dkt. # 18. For example, Mr. 12 Wathen contends that discovery may yield “a copy of the claims file including the diary 13 notes,” which will reveal how Associated Industries interprets and applies similar 14 policies. Id. ¶ 3. 15 Associated Industries argues that discovery is unnecessary given that 16 interpretation of the insurance policy is a question of law and that the policy terms are 17 unambiguous, obviating the need for extrinsic evidence. Dkt. # 24 at 3-5. However, 18 contract interpretation is not solely a legal question if a provision is subject to multiple 19 reasonable interpretations. Hall v. Custom Craft Fixtures, Inc., 937 P.2d 1143 (Wash. Ct. 20 App. 1997) (“Summary judgment is not proper if the parties’ written contract, viewed in 21 light of the parties’ other objective manifestations, has two or more reasonable but 22 competing meanings.”); see also W. Washington Corp. of Seventh-Day Adventists v. 23 Ferrellgas, Inc., 7 P.3d 861, 866 (Wash. Ct. App. 2000) (“Extrinsic evidence may be 24 used whether or not the contract language is ambiguous.”). Likewise, the “materiality” of 25 any alleged breach is a question of fact. See Bailie Commc’ns, Ltd. v. Trend Bus. Sys., 26 765 P.2d 339, 342 (Wash. Ct. App. 1988). 27 Even if a dispute of material fact is not readily apparent from this limited factual 1 record—a conclusion the Court declines to reach at this stage—summary judgment in 2 Associated Industries’s favor is inappropriate given that CWLH has had no opportunity 3 to engage in discovery and develop its theory of the case. See Burlington, 323 F.3d at 4 774 (“[T]he party making a Rule 56(f) motion cannot be expected to frame its motion 5 with great specificity as to the kind of discovery likely to turn up useful information, as 6 the ground for such specificity has not yet been laid.”). 7 Accordingly, the Court GRANTS in part CWLH’s Rule 56(d) request for 8 additional discovery. Dkt. # 21. Rather than continuing Associated Industries’s motion 9 for partial summary judgment, the Court DENIES the motion without prejudice to 10 refiling after the parties have engaged in a reasonable amount of discovery. See 11 Burlington Northern, 323 F.3d at 773-74. 12 V. CONCLUSION 13 For the above reasons, Associated Industries’s Motion for Partial Summary 14 Judgment Seeking a Declaration of No Coverage (Dkt. # 11) is DENIED without 15 prejudice and CWLH’s Motion to Continue Plaintiff’s Motion for Partial Summary 16 Judgment (Dkt. # 21) is GRANTED in part. Given the significant overlap between this 17 case and Cole Wathen, the Court implores the parties to minimize redundancy and 18 maximize efficiency in litigating the two cases. To that end, the Court instructs the 19 parties to submit a joint statement within 14 days of the entry of this Order. That 20 statement should be no longer than ten pages and should describe how the parties intend 21 to coordinate their discovery, motion practice, and trial between this case and Cole 22 Wathen. 23 DATED this 2nd day of July, 2020. A 24

25 The Honorable Richard A. Jones 26 United States District Judge 27