Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-00280/USCOURTS-casd-3_09-cv-00280-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CENTURY SURETY COMPANY, an

Ohio Corporation,

Plaintiff,

CASE NO. 09CV0280-LAB (AJB)

ORDER DENYING MOTION TO

DISMISS;

ORDER DENYING MOTION FOR

SUMMARY JUDGMENT

WITHOUT PREJUDICE

[Dkt. No. 7.]

vs.

MASTER DESIGN DRYWALL, INC.;

PACIFIC LATH & PLASTER; DOES 1-

100,

Defendants.

Plaintiff Century Surety Company (“Century”) seeks the rescission of an insurance

policy it issued to Defendant Master Design Drywall (“Master Design”) on the grounds that

Master Design misrepresented the full nature of its business when it applied for the policy.

Specifically, Century alleges that Master Design represented it only does interior drywall and

wallboard work, when in fact it does exterior lath and plaster work. Lath and plaster work is

riskier, and Century maintains that had it known Master Design sought coverage for such

work, it would not have issued the insurance policy at issue, or it would have issued the

policy under materially different terms. Master Design doesn’t deny that it does lath and

plaster work. Its position is that Century knew (or should have known) this all along, and it’s

too late now to seek rescission. 

Case 3:09-cv-00280-LAB-AJB Document 23 Filed 10/21/09 Page 1 of 6
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 To be clear, Master Design’s argument that Century’s action is untimely goes to the 1

motion to dismiss, and its argument that Century knew it performed and sought coverage for

lath and plaster work goes to the alternative motion for summary judgment.

 Fed. R. Civ. P. 12(d) reads: “If, on a motion under Rule 12(b)(6) or 12(c), matters 2

outside the pleadings are presented to and not excluded by the court, the motion must be

treated as one for summary judgment under Rule 56. All parties must be given a reasonable

opportunity to present all the material that is pertinent to the motion.” The Ninth Circuit’s rule

articulated in Anderson – the Court must rely on the extrinsic evidence in order to convert

a motion to dismiss into one for summary judgment – obviously varies somewhat from a

literal reading of Rule 12(d). Compare Max Arnold & Sons, LLC v. W.L. Halley & Co., Inc.,

452 F.3d 494, 503 (6 Circuit 2006) (mere presentation of external evidence by party and th

court’s failure to exclude it is sufficient to trigger conversion). 

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Now before the Court is Master Design’s motion to dismiss Century’s complaint for

failure to state a claim. This motion is pled, in the alternative, as a motion for summary

judgment because it is accompanied by and relies on external evidence – that is, evidence

that is not part of the pleadings. That evidence consists of a declaration of Master Design’s 1

owner and president Mary Kathawa, along with five exhibits, including a copy of the “Accord

Application” for the insurance policy at issue.

I. Motion for Summary Judgment

A. Legal Standard

“A motion to dismiss made under Federal Rule of Civil Procedure 12(b)(6) must be

treated as a motion for summary judgment under Federal Rule of Civil Procedure 56 if either

party to the motion to dismiss submits materials outside the pleadings in support or

opposition to the motion, and if the district court relies on those materials.” Anderson v.

Angelone, 86 F.3d 932, 934 (9 Cir. 1996). See Fed. R. Civ. P. 12(d). It is up to the Court th 2

to decide whether it will consider or reject such material. 

When a motion to dismiss is converted to a motion for summary judgment, however,

the general rule is that the non-moving party must be allowed to conduct discovery in order

to oppose it. Inlandboatmens Union of Pacific v. Dutra Group, 279 F.3d 1075, 1083 (9 Cir.

th

2002). A motion to dismiss isn’t automatically converted into a motion for summary

judgment “whenever matters outside the pleading happen to be filed with the court and not

expressly rejected by the court.” North Star Int’l v. Arizona Corporation Comm’n, 720 F.2d

578, 582 (9 Cir. 1983). See also E.E.O.C. v. Creative Networks, LLC, Case No. CV 05- th

Case 3:09-cv-00280-LAB-AJB Document 23 Filed 10/21/09 Page 2 of 6
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3032, 2006 WL 3834286 at *3 (D. Ariz. Dec. 29, 2006) (refusing to convert motion to dismiss

into motion for summary judgment, based on documents extraneous to complaint, because

preliminary stages of discovery and Rule 26(a) disclosures had not occurred); Trew v. Volvo

Cars of North America, LLC, Case No. CIV-S-051379, 2006 WL 306904 at *5 (E.D. Cal. Feb.

8, 2006) (declining to consider declarations attached to motion to dismiss and convert it to

a motion for summary judgment on grounds plaintiff hadn’t had sufficient time for discovery);

Meridian Project Systems, Inc. v. Hardin Const. Co., LLC, Case No. CIV–04-2728, 2005 WL

2615523 at *1 n.1 (E.D. Cal. Oct. 14, 2005) (declining to convert motion to dismiss into

motion for summary judgment when discovery was in its infancy).

That there must be a meaningful opportunity for discovery before the Court will

convert a motion to dismiss into a motion for summary judgment and rule on it is affirmed

in Fed. R. Civ. P. 56(f), which relates to summary judgment motions and reads: “If a party

opposing the motion shows by affidavit that, for specified reasons, it cannot present facts

essential to justify its opposition, the court may: (1) deny the motion; (2) order a continuance

to enable affidavits to be obtained, depositions to be taken, or other discovery to be

undertaken; or (3) issue any other just order.”

B. Discussion

Master Design would have the Court, on the basis of a declaration submitted by its

owner and five attached documents, grant summary judgment in its favor. That would be

premature. No discovery has taken place in this case, and the Court will not make a

summary judgment ruling on the thin evidentiary record before it. Master Design filed its

motion to dismiss, or in the alternative for summary judgment, just one month after this case

was filed. Conversion is not favored under these circumstances. Rubert-Torres v. Hospital

San Pablo, Inc., 205 F.3d 472, 475 (1 Cir. 2000) (disfavoring conversion when the motion st

comes quickly after the complaint is filed and when “discovery is in its infancy and the

nonmovant is limited in obtaining and submitting evidence to counter the motion”). Rule

12(d) explicitly requires that in the event of conversion “[a]ll parties must be given a

//

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reasonable opportunity to present all the material that is pertinent to the motion.” Fed. R.

Civ. P. 12(d).

Century has not had this opportunity. In order to file a timely opposition brief just over

one month after Master Design filed its motion, Century was unable to take meaningful

discovery and thoroughly contest a motion for summary judgment. Consistent with Fed. R.

Civ. P. 56(f), Century’s counsel submitted an affidavit to the Court in which he testified that

Master Design has made no Rule 26 disclosures, there have been no depositions, and with

the exception of the documents attached to Kathawa’s declaration, no documents have been

produced. (See Dollinger Dep. at 2.) The Court agrees with Century that Master Design’s

attempt to seek summary judgment at this point in the litigation is premature. Master

Design’s motion for summary judgment is DENIED, but WITHOUT PREJUDICE. 

II. Motion to Dismiss

A. Legal Standard

A motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6)

challenges the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9 Cir.

th

2001). In considering such a motion, the Court accepts all allegations of material fact as true

and construes them in the light most favorable to the non-moving party. Cedars-Sinai Med.

Ctr. v. Nat’l League of Postmasters of U.S., 497 F.3d 972, 975 (9 Cir. 2007). That said, a th

complaint’s factual allegations “must be enough to raise a right to relief above the

speculative level . . . .” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). “[S]ome

threshold of plausibility must be crossed at the outset” before a case can go forward. Id. at

558 (internal quotations omitted). “A claim has facial plausibility when the plaintiff pleads

factual content that allows the Court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (emphasis

added).

B. Discussion

Master Design argues that the facts alleged in Century’s complaint establish that it

knew in December of 2002 that Master Design did (and sought coverage for) lath and plaster

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work, and that Century’s claims are therefore barred by the statute of limitations. The basis

for this argument is Exhibit B to Century’s complaint, a copy of an “Inspection Report” of

Master Design, prepared for Century by Cox & Smith Enterprises. This report, which is

dated December 23, 2002, states that Master Design possessed a California “C-35" license

for lath and plaster work, and that two employees of Master Design “are doing stucco

patching on an on-call basis.” Thus, Master Design maintains, “The December 23, 2002

‘investigative report’, as an exhibit to Century Surety’s complaint, can be used as proof of

Century Surety’s constructive knowledge of the stucco and lath work.” (Reply Br. at 4.)

The Court respectfully disagrees. The mere fact that Master Design has a license to

do lath and plaster work in no way proves that it does such work, or that it sought from

Century a general commercial liability policy for such work. This is especially true in the

context of a motion to dismiss, when the Court must construe all facts in the light most

favorable to Century.

It is also slightly misleading on Master Design’s part to say “the report states, among

other things, that Master Design . . . was doing ‘stucco patching on an on call basis.’” (Reply

Br. at 5.) In fact, the report notes, first, in a paragraph titled “OPERATIONS,”

This company is doing interior wallboard work. They will install

drywall using nail and screw guns. They will do the tape and

mud work to finish the wall. This company is also doing some

interior foam and spray work. There is no plaster or exterior

work done through this company. 

The reference to “stucco patching” appears below on the report, in a paragraph about the

employees on Master Design’s staff. Again, construing the facts in the light most favorable

to Century, the report does not establish beyond question that Master Design was engaged

in work other than interior drywall and wallboard work, or that it sought liability insurance for

other work. The “stucco patching” line could easily be read to mean that Master Design’s

employees do stucco work on the side, or that they do stucco work for Pro-Wall, a lath and

plaster company owned by Kathawa that is separate from the Defendant company in this

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28 Pro-Wall was initially named in this lawsuit, but jointly dismissed as a Defendant on 3

April 8, 2009. (Dkt. No. 13.)

- 6 - 09CV0280

case. It is certainly an insufficient basis for the Court to conclude that Century was on 3

notice, long ago, that Master Design performed and sought coverage for lath and plaster

work, and that its present lawsuit for misrepresentation is therefore untimely. Master

Design’s motion to dismiss is DENIED. 

III. Conclusion

Master Design has brought a fact-intensive motion to dismiss, or in the alternative, for

summary judgment. For the reasons given above, the motion to dismiss is DENIED. The

motion for summary judgment may, in the final analysis, be meritorious, but it is premature

and the Court is unwilling to consider it at this time. The parties have exchanged no

discovery, and it would not be fair to Century to decide a motion for summary judgment on

the evidence now before the Court, submitted in connection with briefings on the pending

motion. The core of that evidence is self-interested declarations submitted by the parties –

Kathawa for Master Design and the Vice President of Casualty Operations for Century – and

each party raises numerous objections to the declaration submitted by the other. Master

Design’s motion for summary judgment is DENIED WITHOUT PREJUDICE. 

The parties are to contact the chambers of Magistrate Judge Battaglia within 14 days

of the date this Order is entered in order to set discovery deadlines and commence the

discovery process. If Master Design so chooses, the Court will consider another motion for

summary judgment at a later date.

IT IS SO ORDERED.

DATED: October 21, 2009

HONORABLE LARRY ALAN BURNS

United States District Judge

Case 3:09-cv-00280-LAB-AJB Document 23 Filed 10/21/09 Page 6 of 6