1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 * * *
7 NATIONAL CASUALTY CO., a Wisconsin Case No. 2:17-cv-02456-KJD-CWH corporation, 8 ORDER DENYING DEFENDANT’S Plaintiff, MOTION FOR SUMMARY JUDGMENT 9 AND MOTION TO DISMISS v. 10 EFREN ISAAC SOTELO, an individual; and 11 PHILIP MICHAEL BOUCHARD, an individual, 12 Defendants. 13
14 This is an action for declaratory relief with respect to an insurance policy issued by 15 16 Plaintiff National Casualty Company (“NCC”). Presently before the Court are Defendant Philip 17 Michael Bouchard’s (“Bouchard”) Motion for Summary Judgment (#74) and Motion to Dismiss 18 (#77). Plaintiff responded (#79/80) to which Defendant replied (#82/85). 19 I. Factual and Procedural History 20 In July 2016, Bouchard filed a negligence suit in state court after suffering injuries in a 21 22 car accident with Efren Sotelo (“Efren”). (#74 at 4). Efren was driving a pick-up truck owned by 23 his father, Juan Sotelo’s (“Juan”) company Now Services of Nevada, LLC dba Cool Air Now 24 (“Cool Air”). Id. Plaintiff provided commercial automobile insurance to Cool Air. (#1 at 2). The 25 policy covered as insureds the named insured and “anyone else while using with [the named 26 insured’s] permission a covered ‘auto.’” Id. at 3. Whether Efren was a permissive user of the 27 28 truck is the main issue in this case. NCC alleges that Efren was not a permissive user because he 1 was driving a stolen truck after Cool Air fired him two days prior to the accident. Id. Juan filed a 2 police report for the stolen truck on the day of the accident. Id. at 4. Bouchard alleges Efren was 3 a permissive user because his termination paperwork shows that his final day of work would 4 have been after the day of the accident. (#74 ex. 5). Because NCC alleged that Efren did not have 5 6 permission to use the truck, it did not defend him in the original state court action. (#1 at 4). 7 Efren failed to respond to the complaint and the state court entered default judgment against him. 8 Id. NCC filed this suit seeking declaratory judgment in September 2017. Id. at 5. 9 This Court stayed the proceedings pending resolution of the state action in April 2019. 10 (#65). The question of whether Efren was a permissive user of the truck and therefore whether 11 12 NCC owed Efren a duty to defend and indemnify would have been resolved during that trial. Id. 13 at 2. However, Bouchard dismissed Juan and Cool Air the day before trial began. (#80 at 2). 14 Without Juan and Cool Air as parties, the state court could not answer the permissive use 15 question. Id. In April 2019, after receiving the default judgment, Bouchard filed a complaint in 16 state court alleging breach of contract, breach of implied covenants of good faith and fair 17 18 dealing, and declaratory judgment against NCC, another insurance company, and two law firms. 19 (#87-1). The claims arose from the same set of facts as the original action and NCC’s alleged bad 20 faith in not defending Efren. Id. 21 II. Legal Standard 22 Declaratory judgment allows the Court to adjudicate a party’s rights or obligations before 23 24 it seeks a coercive remedy. Seattle Audubon Soc’y v. Moseley, 80 F.3d 1401, 1405 (9th Cir. 25 1996). However, the Declaratory Judgment Act does not expand the Court’s jurisdiction. Id.; see 26 also Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667 (1950). Rather, a claim for 27 declaratory relief is subject to the same federal jurisdictional requirements as any other case; it 28 1 must be “brought by [an] interested party,” and it must involve an actual controversy. See 28 2 U.S.C. § 2201; Moseley, 80 F.3d at 1405. A declaratory judgment action that seeks clarification 3 of an insurer’s coverage obligation or duty to defend is ripe for judicial review. See Govt. Emp.s 4 Ins. Co. v. Dizol, 133 F.3d 1120, 1222 n.2 (9th Cir. 1998); AAA Nev. Ins. Co. v. Chau, No. 5 6 2:08-cv-00827-RCJ-LRL, 2010 WL 1756986, at *3 (D. Nev. Apr. 30, 2010). 7 Summary judgment is appropriate where there exists no genuine issue of fact and when 8 the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a); Celotex 9 Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of showing the 10 absence of genuine issues of material fact. Celotex, 477 U.S. at 323. The burden then shifts to the 11 12 nonmoving party to show specific facts demonstrating a genuine factual dispute for trial. See 13 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The Court makes 14 all justifiable inferences in favor of the nonmoving party. Matsushita, 475 U.S. at 587. However, 15 the nonmoving party may not merely rest on the allegations of his pleadings. Rather, he must 16 produce specific facts—by affidavit or other evidence—showing a genuine issue of fact. 17 18 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Summary judgment is not 19 appropriate if a reasonable jury could return a verdict for the nonmoving party. Id. at 248. 20 III. Analysis 21 Defendant filed a motion to dismiss and a motion for summary judgment. The court 22 analyzes each individually. 23 24 A. Motion to Dismiss 25 When determining if a declaratory judgment action should be dismissed, “[t]he Brillhart 26 factors remain the philosophical touchstone for the district court.” Dizol, 133 F.3d at 1225. The 27 court has three main considerations: it “should avoid needless determination of state law issues; 28 1 it should discourage litigants from filing declaratory actions as a means of forum shopping; and 2 it should avoid duplicative litigation.” Id. These factors are not exhaustive, and the district court 3 may make other considerations, such as: 4 “Whether the declaratory action will settle all aspects of the controversy; whether 5 the declaratory action will serve a useful purpose in clarifying the legal relations 6 as issue; whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a ‘res judicata’ advantage; or whether the use of a 7 declaratory action will result in entanglement between the federal and state court systems. In addition, the district court might also consider the convenience of the 8 parties, and the availability and relative convenience of other remedies.” 9 10 Dizol, 133 F.3d at 1225 n.5. The Brillhart factors and the additional considerations weigh in 11 favor of not dismissing. 12 i. Needless determination of state law issues 13 When “parallel state proceedings involving the same issues and parties [are] pending at 14 15 the time the federal declaratory action is filed, there is a presumption that the entire suit should 16 be heard in state court.” Id. When NCC filed this suit, there was a parallel state proceeding. To 17 avoid a needless determination of a state law issue, this Court stayed the case pending resolution 18 of the state law claim. However, Bouchard dismissed Juan and Cool Air which prevented the 19 state court from making the necessary state law determination. This case focuses on a single 20 21 question, whether Efren was a permissive user of the truck on the day of the accident. That 22 question would have been answered had Bouchard continued to trial. Bouchard’s actions created 23 a need for this Court to make a determination of state law.
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1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 * * *
7 NATIONAL CASUALTY CO., a Wisconsin Case No. 2:17-cv-02456-KJD-CWH corporation, 8 ORDER DENYING DEFENDANT’S Plaintiff, MOTION FOR SUMMARY JUDGMENT 9 AND MOTION TO DISMISS v. 10 EFREN ISAAC SOTELO, an individual; and 11 PHILIP MICHAEL BOUCHARD, an individual, 12 Defendants. 13
14 This is an action for declaratory relief with respect to an insurance policy issued by 15 16 Plaintiff National Casualty Company (“NCC”). Presently before the Court are Defendant Philip 17 Michael Bouchard’s (“Bouchard”) Motion for Summary Judgment (#74) and Motion to Dismiss 18 (#77). Plaintiff responded (#79/80) to which Defendant replied (#82/85). 19 I. Factual and Procedural History 20 In July 2016, Bouchard filed a negligence suit in state court after suffering injuries in a 21 22 car accident with Efren Sotelo (“Efren”). (#74 at 4). Efren was driving a pick-up truck owned by 23 his father, Juan Sotelo’s (“Juan”) company Now Services of Nevada, LLC dba Cool Air Now 24 (“Cool Air”). Id. Plaintiff provided commercial automobile insurance to Cool Air. (#1 at 2). The 25 policy covered as insureds the named insured and “anyone else while using with [the named 26 insured’s] permission a covered ‘auto.’” Id. at 3. Whether Efren was a permissive user of the 27 28 truck is the main issue in this case. NCC alleges that Efren was not a permissive user because he 1 was driving a stolen truck after Cool Air fired him two days prior to the accident. Id. Juan filed a 2 police report for the stolen truck on the day of the accident. Id. at 4. Bouchard alleges Efren was 3 a permissive user because his termination paperwork shows that his final day of work would 4 have been after the day of the accident. (#74 ex. 5). Because NCC alleged that Efren did not have 5 6 permission to use the truck, it did not defend him in the original state court action. (#1 at 4). 7 Efren failed to respond to the complaint and the state court entered default judgment against him. 8 Id. NCC filed this suit seeking declaratory judgment in September 2017. Id. at 5. 9 This Court stayed the proceedings pending resolution of the state action in April 2019. 10 (#65). The question of whether Efren was a permissive user of the truck and therefore whether 11 12 NCC owed Efren a duty to defend and indemnify would have been resolved during that trial. Id. 13 at 2. However, Bouchard dismissed Juan and Cool Air the day before trial began. (#80 at 2). 14 Without Juan and Cool Air as parties, the state court could not answer the permissive use 15 question. Id. In April 2019, after receiving the default judgment, Bouchard filed a complaint in 16 state court alleging breach of contract, breach of implied covenants of good faith and fair 17 18 dealing, and declaratory judgment against NCC, another insurance company, and two law firms. 19 (#87-1). The claims arose from the same set of facts as the original action and NCC’s alleged bad 20 faith in not defending Efren. Id. 21 II. Legal Standard 22 Declaratory judgment allows the Court to adjudicate a party’s rights or obligations before 23 24 it seeks a coercive remedy. Seattle Audubon Soc’y v. Moseley, 80 F.3d 1401, 1405 (9th Cir. 25 1996). However, the Declaratory Judgment Act does not expand the Court’s jurisdiction. Id.; see 26 also Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667 (1950). Rather, a claim for 27 declaratory relief is subject to the same federal jurisdictional requirements as any other case; it 28 1 must be “brought by [an] interested party,” and it must involve an actual controversy. See 28 2 U.S.C. § 2201; Moseley, 80 F.3d at 1405. A declaratory judgment action that seeks clarification 3 of an insurer’s coverage obligation or duty to defend is ripe for judicial review. See Govt. Emp.s 4 Ins. Co. v. Dizol, 133 F.3d 1120, 1222 n.2 (9th Cir. 1998); AAA Nev. Ins. Co. v. Chau, No. 5 6 2:08-cv-00827-RCJ-LRL, 2010 WL 1756986, at *3 (D. Nev. Apr. 30, 2010). 7 Summary judgment is appropriate where there exists no genuine issue of fact and when 8 the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a); Celotex 9 Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of showing the 10 absence of genuine issues of material fact. Celotex, 477 U.S. at 323. The burden then shifts to the 11 12 nonmoving party to show specific facts demonstrating a genuine factual dispute for trial. See 13 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The Court makes 14 all justifiable inferences in favor of the nonmoving party. Matsushita, 475 U.S. at 587. However, 15 the nonmoving party may not merely rest on the allegations of his pleadings. Rather, he must 16 produce specific facts—by affidavit or other evidence—showing a genuine issue of fact. 17 18 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Summary judgment is not 19 appropriate if a reasonable jury could return a verdict for the nonmoving party. Id. at 248. 20 III. Analysis 21 Defendant filed a motion to dismiss and a motion for summary judgment. The court 22 analyzes each individually. 23 24 A. Motion to Dismiss 25 When determining if a declaratory judgment action should be dismissed, “[t]he Brillhart 26 factors remain the philosophical touchstone for the district court.” Dizol, 133 F.3d at 1225. The 27 court has three main considerations: it “should avoid needless determination of state law issues; 28 1 it should discourage litigants from filing declaratory actions as a means of forum shopping; and 2 it should avoid duplicative litigation.” Id. These factors are not exhaustive, and the district court 3 may make other considerations, such as: 4 “Whether the declaratory action will settle all aspects of the controversy; whether 5 the declaratory action will serve a useful purpose in clarifying the legal relations 6 as issue; whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a ‘res judicata’ advantage; or whether the use of a 7 declaratory action will result in entanglement between the federal and state court systems. In addition, the district court might also consider the convenience of the 8 parties, and the availability and relative convenience of other remedies.” 9 10 Dizol, 133 F.3d at 1225 n.5. The Brillhart factors and the additional considerations weigh in 11 favor of not dismissing. 12 i. Needless determination of state law issues 13 When “parallel state proceedings involving the same issues and parties [are] pending at 14 15 the time the federal declaratory action is filed, there is a presumption that the entire suit should 16 be heard in state court.” Id. When NCC filed this suit, there was a parallel state proceeding. To 17 avoid a needless determination of a state law issue, this Court stayed the case pending resolution 18 of the state law claim. However, Bouchard dismissed Juan and Cool Air which prevented the 19 state court from making the necessary state law determination. This case focuses on a single 20 21 question, whether Efren was a permissive user of the truck on the day of the accident. That 22 question would have been answered had Bouchard continued to trial. Bouchard’s actions created 23 a need for this Court to make a determination of state law. The state tort case did not involve the 24 same issues as this federal declaratory action, which centers on the coverage dispute, not 25 liability. As the Ninth Circuit has held, when “the state court case did not include the coverage 26 27 issue, and because the coverage issue in the federal action [is] not contingent on any further state 28 court proceedings, the district court [finds] good cause to continue to exercise jurisdiction.” Am. 1 Cas. Co. of Reading, Penn. V. Krieger, 181 F.3d 1113, 1119 (9th Cir. 1999). This is not a case in 2 which the federal court is faced with a request for a needless determination of state law issues. 3 ii. Forum shopping 4 “This factor usually is understood to favor discouraging an insurer from forum shopping, 5 6 i.e., filing a federal court declaratory action to see if it might fare better in federal court at the 7 same time the insurer is engaged in a state court action.” Id. However, defendants can also 8 offend this factor by attempting to restart in state court after the case has proceeded in federal 9 court. See id. By staying the case pending the resolution of the state law action, this Court made 10 sure NCC was not forum shopping. However, Bouchard dismissed certain defendants, obtained a 11 12 default judgment while avoiding the resolution of the main question, and then filed a similar case 13 in state court. His actions appear to be more of an effort to forum shop than Defendant’s as he 14 wishes to proceed in state court after three years of litigation in federal court. This factor weighs 15 in favor of the Court retaining jurisdiction and against dismissing. 16 iii. Duplicative litigation 17 18 This case is similar to the previously mentioned case Am. Cas. Co. of Reading, PA v. 19 Krieger. 181 F.3d 1113 (9th Cir. 1999). In Krieger, when a motion to dismiss was filed in federal 20 court, “the state court litigation had concluded without deciding the coverage issue before the 21 district court in the declaratory relief action.” Id. at 1119. Similarly, the original state action in 22 this case concluded without deciding the coverage issue. The federal court action was not 23 24 duplicative in Krieger and it is not duplicative here. 25 iv. Additional considerations 26 The additional considerations that the Ninth Circuit permits the district court to look at 27 also weigh against dismissal. A decision in this declaratory action will settle the controversy that 28 1 has not been resolved during this three-year-long litigation process. It will also clarify the legal 2 relations at issue. Additionally, the Court does not find any evidence that NCC filed this case to 3 obtain a res judicata advantage.1 Retaining jurisdiction in this declaratory judgment action will 4 not result in entanglement between the federal and state court systems as this will answer the 5 6 question that neither court has been able to answer to date. There is a vast docket in the federal 7 action that has been ongoing since 2017 and a dismissal now would offend judicial economy and 8 promote the waste of judicial resources. 9 Because the Brillhart factors and additional considerations weigh in favor of this Court 10 retaining jurisdiction, dismissal is inappropriate. 11 12 B. Summary Judgment 13 Defendant’s motion for summary judgment fails for the same reason that NCC’s motion 14 for summary judgment failed in November 2018. The same genuine issue of material fact exists 15 today that existed three years ago when this case began. Whether Efren was a permissive user of 16 the truck has not come any closer to resolution since the last time this Court ruled on a motion 17 18 for summary judgment. Because this same genuine issue of material fact exists, summary 19 judgment is improper. 20 Bouchard also argues that this claim is precluded under res judicata principles. For claim 21 preclusion to apply “the following factors must be met: 1) the same parties or their privies are 22 involved in both cases, 2) a valid final judgment has been entered, and 3) the subsequent action 23 24 is based on the same claims or any part of them that were or could have been brought in the first 25 case.” Five Star Cap. Corp. v. Ruby, 194 P.3d 709, 714 (Nev. 2008). Bouchard argues that the 26 27 28 1 While NCC is not seeking a res judicata advantage, Bouchard is. In the Court’s opinion, this weighs against Bouchard in his motion to dismiss. 1 | default judgment is a judgment on the merits because “the facts alleged in the pleadings will be 2 deemed admitted.” Foster v. Dingwall, 227 P.3d 1042, 1049 (Nev. 2010). The Court disagrees. The next line in Foster states: “Thus, during an NRCP 55(b) prove-up hearing, the district court
5 shall consider the allegations deemed admitted to determine whether the nonoffending party has 6 | established a prima facie case for liability.” Id. (emphasis added). A court should only consider the allegations deemed admitted to determine if the nonoffending party has established a prima 8 facie case of liability in a prove-up hearing. This is further supported by the Nevada Court of Appeals, which stated that with a default, “the well-pleaded allegations of a complaint relating to
liability are taken as true.” Seefeldt v. Griffie, 2019 WL 6972230, *2 (Nev. Ct. App. 2019) 12 (quoting VLM Food Trading Int’] Inc. v. Ill. Trading Co., 811 F.3d 247, 255 (7th Cir. 2016)) (emphasis added). The allegations are only taken as true when they relate to liability. Whether 14 Efren was a permissive user of the truck is the main question; liability for the accident is not at ° issue in this action. The default judgment is silent to the question and claim preclusion is
improper. Because Defendant cannot satisfy the final judgment prong of claim preclusion 18 | analysis, it is unnecessary to analyze the other two factors. 19 IV. Conclusion 20 Accordingly, IT Is HEREBY ORDERED that Defendant Philip Michael Bouchard’s Motion for Summary Judgment (#74) and Motion to Dismiss (#77) are DENIED.
73 Dated this 23rd day of September, 2020. 24 Cc ™ 25 Lt 6 Kent J. Dawson United States District Judge 27 28
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