Travelers Indemnity Company of Connecticut v. Newlin

• Court: District Court, S.D. California
• Decided: March 22, 2022
• Docket: 3:20-cv-00765
• Status: Unknown

Opinion

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 TRAVELERS INDEMNITY COMPANY Case No.: 20cv765-GPC(DEB) OF CONNECTICUT, 11 ORDER SUA SPONTE STAYING Plaintiff, 12 THE CASE AND OVERRULING v. OBJECTIONS TO DISCOVERY 13 ISSUES WITHOUT PREJUDICE ANTHONY and BLYTHE NEWLIN, as 14 individuals; QUADE & ASSOCIATES, [Dkt. Nos. 132, 134.] 15 PLC, a California professional liability company; AIG PROPERTY CASUALTY 16 COMPANY, a Pennsylvania corporation, 17 and DOES 1 through 10, inclusive, 18 Defendants 19 and Related Counterclaims and Third- 20 Party Complaints.

21 Before the Court are Third-Party Plaintiffs Anthony and Blythe Newlin (the 22 “Newlins”), Counterclaimant/Third Party Plaintiffs Quade and Associates, a PLC 23 (“Quade”) and Counterclaimant/Third Party Plaintiffs AIG Property Casualty Company’s 24 (“AIG”) partial objections to Magistrate Judge Daniel Butcher’s Order following a 25 discovery hearing on January 6, 2022 concerning discovery disputes with 26 Counterdefendant Travelers Indemnity Company of Connecticut (“Travelers”) and Third 27 28 1 Party Defendant CCL Contracting, Inc. (“CCL”). (Dkt. Nos. 132, 134, 137.) The 2 objections are fully briefed. (Dkt. Nos. 154, 156, 158, 159, 160, 152, 155.) 3 The discovery issues concern Travelers and CCL’s motion to compel the 4 production of unredacted attorney fee invoices from Quade1 regarding the defense of the 5 Newlins in the underlying Hamadeh Litigation in state court as well as producing 6 unredacted copies of the legal services agreement and attached assignment between the 7 Newlins and Quade as these are damages sought by AIG, Quade and the Newlins in their 8 respective counterclaims and third party complaints. Based on a review of the papers, 9 and the status of the pending state court case, the Court SUA SPONTE stays the case 10 pending the outcome of the state court cross-complaint filed by the Newlins against CCL 11 and OVERRULES the objections to discovery issues without prejudice. 12 Procedural Background 13 On April 22, 2020, Plaintiff Travelers filed a complaint alleging counts for 14 declaratory relief against Defendants the Newlins, Quade and AIG as well as a breach of 15 contract claim against the Newlins seeking to clarify its defense and indemnity 16 obligations to the Newlins, Quade and AIG arising from an underlying state court 17 complaint in San Diego County Superior Court, Case No. 37-2017-00006963-CU-OR- 18 NC entitled Hamadeh et al. v. Newlins, et al., (“Hamadeh Litigation”). (Dkt. No. 1, 19 Compl.) A first amended complaint (“FAC”) was filed on May 1, 2020 alleging the same 20 claims. (Dkt. No. 5, FAC.) On June 11, 2020, the Newlins and Quade filed a motion to 21 dismiss pursuant to Rule 12(b)(1) and Rule 12(b)(6), (Dkt. No. 15), and AIG filed a 22 motion to dismiss pursuant to Rule 12(b)(1). (Dkt. No. 13.) After full briefing on the 23 motions, on September 14, 2020, the Court granted the Newlins’ motion to dismiss the 24 breach of contract claims under Rule 12(b)(6) and granted all Defendants’ motions to 25 dismiss pursuant to Rule 12(b)(1) with leave to amend. (Dkt. No. 55.) On September 24, 26 27 28 1 2020, Travelers filed a second amended complaint (“SAC”). (Dkt. No. 56.) On October 2 13, 2020, the Newlins, Quade and AIG filed motions to dismiss. (Dkt. Nos. 66, 67.) On 3 January 13, 2021, after full briefing by the parties, the Court granted the Newlins, Quade 4 and AIG’s motions to dismiss the second amended complaint pursuant to Rule 12(b)(1) 5 with prejudice. (Dkt. No. 93.) 6 Additionally, on June 11, 2020, the Newlins, AIG and Quade each separately filed 7 a counterclaim against Travelers and each separately filed a third-party complaint against 8 CCL. (Dkt. Nos. 14, 16, 17.) On the counterclaim, AIG sought equitable subrogation, 9 equitable indemnity and equitable contribution against Travelers for its defense and 10 indemnification of the Newlins in the Hamadeh Litigation. (Dkt. No. 14.) Travelers filed 11 an answer to AIG’s counterclaim. (Dkt. No. 31.) On the Newlins and Quade’s 12 counterclaims, Travelers filed motions to dismiss which the Court granted on November 13 2, 2020 with leave to amend. (Dkt. Nos. 32, 33, 46, 49, 73.) The Newlins and Quade 14 filed their first amended counterclaims against Travelers on November 20, 2020. (Dkt. 15 No. 81, 82.) The Newlins’ amended counterclaim alleged two causes of action against 16 Travelers for breach of contract and breach of the implied covenant of good faith and fair 17 dealing. (Dkt. No. 81, Newlins’ Am. Counterclaim/TPC.) Quade’s amended 18 counterclaim asserts two causes of action for breach of contract and indemnity, equitable 19 subrogation, waiver/estoppel against Travelers. (Dkt. No. 81, Quade’s Am. 20 Counterclaim/TPC.) On April 2, 2021, the Court granted Travelers’ motion to dismiss 21 the amended counterclaim by the Newlins and denied the motion to dismiss the amended 22 counterclaim by Quade. (Dkt. No. 96.) Travelers filed an answer to the amended 23 counterclaim by Quade on April 16, 2021. (Dkt. No. 97.) 24 On the third-party complaints, the Newlins and Quade allege breach of contract 25 against CCL for failing to defend and indemnify the Newlins in the Hamadeh Litigation 26 per the terms of the Santa Fe Irrigation Contract and the Property Owners Contract. (Dkt. 27 Nos. 16, 17.) AIG, in its third-party complaint, sought equitable subrogation and 28 equitable contribution against CCL. (Dkt. No. 14.) On November 2, 2020, the Court 1 denied CCL’s motions to dismiss the third-party complaints filed by the Newlins, AIG 2 and Quade. (Dkt. Nos. 50, 51, 52, 58, 59, 60, 70, 73.) 3 The remaining pleadings in this case are AIG’s counterclaim against Travelers, 4 (Dkt. No. 14), Quade’s amended counterclaim against Travelers, (Dkt. No. 82), and the 5 Newlins, AIG and Quade’s third-party complaints against CCL. (Dkt. Nos. 14, 16, 17.) 6 The issues in this case arise from the state court Hamadeh Litigation where the 7 Hamadeh plaintiffs, on February 24, 2017, filed suit against the Newlins and others for 8 negligent misrepresentation, negligence, breach of contract and fraud related causes of 9 action concerning representations made by the Newlins’ during the sale of the Newlins’ 10 home to the Hamadeh plaintiffs. (Dkt. No. 82, Quade’s Am. Counterclaim ¶ 12.) On 11 December 7, 2017, the Newlins filed a cross-complaint against CCL2 for breach of 12 contract for failing to accept the tender for defense and indemnity, and negligence. (Id. ¶ 13 72; see also Dkt. No. 51-2, CCL’S RJN, Ex. A, Newlins’ State Court Cross-Complaint ¶¶ 14 58-76; 83-92.) On January 24, 2019, the case between the Hamadeh plaintiffs and the 15 Newlins as well as all cross-defendants, except CCL, settled at a mediation where AIG 16 paid out $900,000 for the settlement. (Id. ¶ 70.) The cross-complaint by the Newlins 17 against CCL is still pending where the state court held a hearing on CCL’s motion to 18 compel the same documents in this case on March 4, 20223 and a trial is set on July 15, 19 2022. (Dkt. No. 156-1 Quade Decl. ¶ 5.) 20 Discussion 21 Early on, the Court recognized that the pending cross-complaint by the Newlins 22 against CCL in state court involved similar underlying facts and legal issues as in this 23 case because both cases address Travelers’, CCL’s insurer, alleged failure to defend and 24

25 26 2 While the Newlins owned the property, CCL was contracted by the Rancho Santa Fe Irrigation District to perform work on the water infrastructure on the Newlins’ property and move/install a new fire 27 hydrant and other related work. (Dkt. No. 82, Quade TPC/Counterclaim ¶ 10.) 3 The briefing on the objections was all filed before the state court discovery hearing. The parties have 28 1 indemnify the Newlins in the underlying Hamadeh litigation. (Dkt. No. 55 at 25.) At the 2 time, the Court expressed concerns about entangling its substantive rulings with the 3 pending state court action. (Id.) In that order of September 14, 2020, the Court directed 4 the parties to file briefs on whether a stay or dismissal is warranted due to the pending 5 state court action. (Id. at 27.) On October 9, 2020, AIG, Newlins and Quade filed a 6 supplemental brief arguing that the Court should exercise its discretion and “consolidate” 7 the Newlins’ state cross-complaint against CCL with the current case and argued neither 8 for dismissal or a stay. (Dkt. Nos. 62, 63.) On the other hand, CCL4, of course, argued 9 for dismissal of the TPC against it in favor of the cross-complaint in state court. (Dkt. 10 No. 65.) No party supported a stay of the case. The Court did not make a ruling on the 11 whether the case should be stayed. 12 Now pending before the Court are objections filed by AIG, Quade and the Newlins 13 concerning production of Quade’s unredacted attorney fee invoices and the legal services 14 agreement and an attached assignment between Quade and the Newlins. These 15 objections highlight that a stay is warranted in this case. 16 A federal district court possesses the inherent power to “control the disposition of 17 the causes on its docket with economy of time and effort for itself, for counsel, and for 18 litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). 19 Where it is proposed that a pending proceeding be stayed, the competing interests which will be affected by the granting or refusal to grant a stay 20 must be weighed. Among those competing interests are [1] the possible 21 damage which may result from the granting of a stay, [2] the hardship or inequity which a party may suffer in being required to go forward, and [3] 22 the orderly course of justice measured in terms of the simplifying or 23 complicating of issues, proof, and questions of law which could be expected to result from a stay. 24 25

26 4 CCL had moved to dismiss the TPC against it due to claim splitting based on the cross-complaint in 27 state court. (Dkt. No. 73 at 22.) However, because claim splitting does not apply to concurrent federal and state jurisdiction, and CCL failed to provide any other theory for dismissal, the Court denied the 28 1 2 Lockyer v. Mirant, 398 F.3d 1098, 1110 (9th Cir. 2005) (quoting CMAX, Inc. v. Hall, 300 3 F.2d 265, 268 (9th Cir. 1962)). “A trial court may, with propriety, find it is efficient for 4 its own docket and the fairest course for the parties to enter a stay of an action before it, 5 pending resolution of independent proceedings which bear upon the case. This rule 6 applies whether the separate proceedings are judicial, administrative, or arbitral in 7 character, and does not require that the issues in such proceedings are necessarily 8 controlling of the action before the court.” Leyva v. Certified Grocers of California, Ltd., 9 593 F.2d 857, 863 (9th Cir. 1979) (citing Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 10 342 U.S. 180 (1952); Landis, 299 U.S. at 254-55 (additional citations omitted)). 11 “In the typical Landis stay case, a federal court postpones resolution of the case 12 pending some related proceeding. However, the related proceeding typically serves only 13 to narrow the factual or legal issues for the federal court. . . . [A] Landis stay is generally 14 of a limited duration.” Stoltz v. Fry Foods, Inc., 60 F. Supp. 3d 1132, 1136-37 (D. Idaho 15 2014) see also Landis, 299 U.S. at 250-51 (recognizing that the related case “may not 16 settle every question of fact and law” in the stayed federal action). A district court has 17 discretion whether to grant or deny a Landis stay. See Dependable Highway Express, 18 Inc. v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th Cir. 2007). 19 Judicial efficiency supports a stay where the same discovery dispute has already 20 been heard in a pending state court case, see Citizens Ins. Co. of America v. Chief Digital 21 Advisors, Case No.: 20-cv-1075-MMA (AGS) 2020 WL 8483913, at *3 (S.D. Cal. Dec. 22 20, 2020) (“Avoiding inconsistent rulings promotes judicial efficiency and supports a 23 stay.”), and the case, which mirrors the claim in this case, is currently set for trial on July 24 15, 2022. (Compare Dkt. No. 16, Newlin’s TPC against CCL ¶¶ 58-62 with Dkt. No. 51- 25 2, CCL’S RJN, Ex. A, Newlins’ State Court Cross-Complaint ¶¶ 59-75.) The Court 26 observes no damage or prejudice from issuing a stay of the case, and a state court trial on 27 whether CCL breached the contracts at issue will certainly simplify or clarify the issues 28 in this case and the orderly administration of justice will be preserved. Therefore, the 1 || Court exercises its discretion and sua sponte stays the case until resolution of the cross- 2 ||complaint in state court. Because the decision in state court will affect the pending 3 || discovery issues in this case, the Court OVERRULES the objections to the discovery 4 ||issues without prejudice. 5 Conclusion 6 Based on the above, the Court sua sponte STAYS the case until resolution of the 7 cross-complaint in state court. As such, the Court OVERRULES the objections to the 8 || discovery issues without prejudice. The parties are DIRECTED to file a joint status 9 ||report within seven (7) days of resolution of the state court action, including whether 10 || either party plans to appeal. 11 IT IS SO ORDERED. 12 ||Dated: March 22, 2022 <=

14 United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28