Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_13-cv-02931/USCOURTS-casd-3_13-cv-02931-0/pdf.json

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

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

THE INSURANCE COMPANY OF 

THE STATE OF PENNSYLVANIA, 

 Plaintiff, 

Case No. 3:13-cv-02931-BAS(DHB) 

ORDER: 

(1) DENYING DEFENDANT’S 

MOTION TO DISMISS 

(ECF NO. 8); AND 

(2) DIRECTING PLAINTIFF 

TO FILE AN AMENDED 

COMPLAINT 

 v. 

GEMINI INSURANCE 

COMPANY, ET AL., 

 Defendants. 

On December 6, 2013, Plaintiff The Insurance Company of the State of 

Pennsylvania (“Plaintiff”) commenced this action against Defendants Gemini 

Insurance Company (“Gemini”), La Jolla Pacific Development Group, and 

Montecito Foothills, LLC seeking declaratory judgments pursuant to 28 U.S.C. §§ 

2201(a) and 2202, and Rule 57 of the Federal Rules of Civil Procedure, and 

equitable subrogation and equitable indemnity. On February 20, 2014, Gemini 

moved to dismiss Plaintiff’s complaint for failure to join all necessary and 

indispensable parties pursuant to Rule 12(b)(7) of the Federal Rules of Civil 

Procedure. 

The Court finds this motion suitable for determination on the papers 

submitted and without oral argument. See Civ. L.R. 7.1(d)(1). For the following 

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reasons, the Court DENIES Gemini’s Motion to Dismiss. However, pursuant to 

Rule 19(a)(2) of the Federal Rules of Civil Procedure, the Court ORDERS Plaintiff 

to file an amended complaint adding Lyon Realty Advisors, Inc., Lyon 

Management Group, Inc., Provence Apartments LLC, Deca, LP, and Midwest 

General, Inc. as parties. 

I. BACKGROUND 

Gemini provides primary liability insurance coverage for construction 

projects in California. (ECF No. 1 (“Compl.”) at ¶¶ 5, 12, 25.) Gemini issued a 

primary commercial general liability policy to Montecito Canyons & Provence, 

LLC (“Montecito Canyons”), No. CNGP001092, related to two projects, the 

Provence Project and The Canyons Project (hereinafter the “Gemini Montecito 

Policy”). (Id. at ¶ 12 & Ex. A.) Montecito Canyons is the First Named Insured 

under the Gemini Montecito Policy. (Id.) Other Named Insureds on the Gemini 

Montecito Policy for the Provence Project in Foothill Ranch, California include: 

Montecito Investment Company, LLC; Montecito Property, LLC; Montecito 

Acquisition Corporation; Lyon Management Group, Inc.; Lyon Realty Advisors, 

Inc.; Lyon Capital Ventures, LLC; all contractors and subcontractors enrolled in the 

Owner Controlled Insurance Program; Montecito Foothills, LLC; Montecito 

Foothills I, LLC; Provence Apartments, LLC; Montecito Provence Limited 

Partnership; and Montecito Provence, LLC. (Id. at Ex. A (ISOP 0023).) The 

Gemini Montecito Policy provides limits in the amount of $2 million per 

occurrence, $2 million general aggregate, $2 million Products-Completed 

Operations aggregate, and includes a $100,000 per occurrence Self-Insured 

Retention (“SIR”). (Id. at ¶ 12 & Ex. A (ISOP 0003, 0059-61).)

On or about May 5, 2011, legal proceedings were commenced against 

Montecito Foothills, LLC in Orange County Superior Court related to the Provence 

Project, and Gemini was notified of the claim (“Montecito Action”). (Id. at ¶¶ 11, 

14-16.) The plaintiff in the Montecito Action is seeking damages in excess of $17 

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million. (Id. at ¶ 22.) Gemini exercised its right to defend, appointed defense 

counsel, and has been defending the Montecito Action since at least June 2011. (Id. 

at ¶ 17.) Gemini has been defending its insureds in the Montecito Action “subject 

to the right to obtain reimbursement of or seek an offset for the policies’ ... 

$100,000 per occurrence SIR.” (Id. at ¶ 18.)

 Gemini issued a separate Commercial General Liability policy to La Jolla 

Pacific Development Group, Inc. (“La Jolla Pacific”), No. CNGP001023, related to 

the La Jolla Project (hereinafter “Gemini La Jolla Policy”). (Id. at ¶ 25 & Ex. C.) 

La Jolla Pacific is the First Named Insured on the Gemini La Jolla Policy. (Id. at ¶ 

25 & Ex. C (ISOP 0106).) Other Named Insureds include Ninth Avenue Joint 

Venture, LP, Deca, LP, and all contractors and subcontractors enrolled in the 

Owner Controlled Insurance Program. (Id. at ¶ 25 & Ex. C (ISOP 0106, 0172).) 

The Gemini La Jolla Policy provides limits in the amount of $2 million per 

occurrence, $2 million general aggregate, $2 million Products-Completed 

Operations aggregate, and includes a $100,000 per occurrence SIR. (Id. at ¶ 25, Ex. 

C (ISOP 0103, 0140-42).)

 At some point prior to July 2010, the Deca Owners Association, Deca 34, and 

James Dax (collectively the “Deca HOA”) notified La Jolla Pacific of alleged 

defects in the La Jolla Project (“La Jolla Action”). (Id. at ¶¶ 24, 27.) The Deca 

HOA seeks damages from La Jolla Pacific and Deca, LP in excess of $4 million. 

(Id. at ¶ 32.) Gemini acknowledged notice of the constructive defect action and 

agreed to defend La Jolla Pacific. (Id. at ¶ 29.) Gemini appointed defense counsel 

and has been defending the La Jolla Action since at least July 2010. (Id. at ¶ 30.)

 Plaintiff issued its own excess liability policies to Montecito Foothills, LLC 

and to La Jolla Pacific. (Id. at ¶¶ 13, 26.) These policies provide coverage in 

excess of Gemini’s policies. (Id.) Montecito Foothills, LLC and other named 

insureds seek indemnification from Plaintiff related to the Montecito Action. (Id. at 

¶ 13.) La Jolla Pacific and Deca, LP seek indemnification from Plaintiff related to 

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the La Jolla Action. (Id. at ¶ 26.) Plaintiff contends that it has no duty to defend 

under the policies, but must pay defense costs upon proper exhaustion of the policy 

limits for covered claims set forth in Gemini’s policies. (Id. at ¶¶ 13, 26.) Plaintiff 

asserts that its policies “only respond[] if, and only if, the underlying Gemini Policy 

properly exhausts its Limits for covered claims.” (Id. at ¶ 39.) 

Plaintiff alleges that Gemini’s liability limits apply only in excess of the SIR 

and the SIR required under the policies “cannot be insured or reinsured or be paid 

for by any entity other than the insured responsible for the SIR.” (Id. at ¶¶ 42-43.) 

Plaintiff alleges that under Gemini’s policies the First Named Insured is the party 

responsible for paying the SIR and that other insureds “are prohibited from paying 

SIRs on behalf of the First Named Insured.” (Id. at ¶ 43.) Plaintiff also contends 

that “Gemini only has a duty and obligation to defend its insureds once the 

applicable SIR amounts have been satisfied by the First Named Insured for each 

and every occurrence.” (Id.) Plaintiff alleges that “[i]n the Montecito Action, 

neither the First Named Insured or any other insured has satisfied even one SIR, and 

in the La Jolla Action, an insured other than the First Named Insured placed 

$100,000 in a trust account, even though the First Named Insured is an active 

entity.” (Id. at ¶ 43.) 

Plaintiff asserts that the policies state that upon receiving notice of an 

occurrence or claim, Gemini has “the right, but no obligation, in all cases, at [its] 

own expense, to assume control or defense of any claim, and upon [its] written 

request the implicated insured shall pay to [Gemini] all or any portion of the [SIR 

it] deem[s] reasonable or necessary.” (Id. at ¶¶ 42, 44.) Plaintiff further alleges 

that in the two underlying actions, “Gemini exercised its right to defend and 

assumed control of the defense prior to satisfaction of the applicable number of 

SIRS, but is eroding its Limits by the payment of defense expenses as if it had a 

duty to defend.” (Id. at ¶ 44.) Plaintiff contends that the applicable SIR must be 

satisfied for each and every occurrence before Gemini has any obligation to defend 

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its insured and each separate proximate cause of property damage for which the 

plaintiffs in the Montecito Action and La Jolla Action seek damages constitutes a 

separate occurrence. (Id. at ¶ 46.) 

By this lawsuit, Plaintiff seeks a determination regarding proper exhaustion 

of Gemini’s limits. (Id. at ¶ 47.) Specifically, Plaintiff asks the Court to determine 

and declare that (1) Gemini has no duty or obligation to defend its insureds unless 

and until the applicable per occurrence SIR amounts are satisfied by the responsible 

insured, pursuant to the express provisions of Gemini’s policies; (2) Gemini’s duty 

to defend has yet to arise in the Montecito Action and La Jolla Action; (3) until 

such time as Gemini has a duty to defend, it may exercise its right to defend, but 

while exercising its right to defend, all defense expenses and indemnity payments 

made by Gemini are at Gemini’s own expense and do not erode Gemini’s Limits, 

pursuant to Gemini’s policies; (4) Plaintiff never has a duty to defend any insured, 

and only has a duty to pay defense expenses and/or a duty to indemnify its insureds 

for damages because of property damage caused by an occurrence upon proper 

exhaustion of the underlying Gemini policy and all other available insurance; (5) 

the First Named Insured’s bankruptcy, insolvency or inability to pay the SIR does 

not require Plaintiff to drop down and pay defense expenses and/or make indemnity 

payments that are within Gemini’s insurance area, including its per occurrence SIR 

requirement; (6) Gemini may not withdraw from the defense of its insureds based 

on the alleged exhaustion of its Limits during the course of this litigation, which 

seeks a determination regarding proper erosion and/or exhaustion of Gemini’s 

policies; and (7) each distinct proximate cause of alleged property damage in the 

Montecito Action and La Jolla Action for which the plaintiffs seek recovery 

constitutes a separate occurrence. (Id. at ¶¶ 52-53, 57, 61-62, 65, 69.) 

Plaintiff further asks the Court to determine and declare the specific number 

of occurrences alleged to have caused property damage for which the plaintiffs in 

the Montecito Action and La Jolla Action seek recovery. (Id. at ¶ 74.) Plaintiff also 

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asserts claims for equitable subrogation and equitable indemnity. (Id. at ¶¶ 77-87.) 

Prior to this action, Plaintiff filed a similar complaint against Gemini in the 

United States District Court for the District of Connecticut. (Id. at ¶ 3.) The 

Connecticut district court dismissed the case allegedly due to failure to join the First 

Named Insureds as necessary and indispensable parties. (Id.) Plaintiff then re-filed 

its complaint with this Court and named as additional defendants the First Named 

Insured under the Gemini La Jolla Policy and a named insured under the Gemini 

Montecito Policy. (Id. at Exs. A & C.) Plaintiff seeks no relief from these 

defendants. (Id. at ¶ 3.) 

Gemini now moves the Court to dismiss Plaintiff’s complaint for failure to 

join indispensable parties. Gemini argues that Lyon Realty Advisors, Inc., Lyon 

Management Group, Inc., Provence Apartments LLC, Deca, LP, and Midwest 

General, Inc. are necessary and indispensable parties. Plaintiff opposes, 

maintaining that it has joined all necessary parties. 

II. LEGAL STANDARD 

A party may move to dismiss a complaint for “failure to join a party under 

Rule 19.” Fed. R. Civ. P. 12(b)(7). In relevant part, Federal Rule of Civil 

Procedure 19(a) provides that 

[a] person who is subject to service of process and whose joinder will 

not deprive the court of subject-matter jurisdiction must be joined as a 

party if: (A) in that person’s absence, the court cannot accord 

complete relief among existing parties; or (B) that person claims an 

interest relating to the subject of the action and is so situated that 

disposing of the action in the person’s absence may: (i) as a practical 

matter impair or impede the person’s ability to protect the interest; or 

(ii) leave an existing party subject to a substantial risk of incurring 

double, multiple, or otherwise inconsistent obligations because of the 

interest.... If a person has not been joined as required, the court must 

order that the person be made a party.... If a joined party objects to 

venue and the joinder would make venue improper, the court must 

dismiss that party. 

Fed. R. Civ. P. 19(a). 

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A three-step analysis is used to determine if a party is required to be joined 

under Rule 19. E.E.O.C. v. Peabody W. Coal Co., 400 F.3d 774, 779 (9th Cir. 

2005). First, a court must determine whether a nonparty should be joined under 

Rule 19(a). Id. Rule 19(a) provides a two-pronged inquiry for determining whether 

a party is “necessary.” White v. Univ. of Cal., 765 F.3d 1010, 1026 (9th Cir. 2014) 

(citing Confederated Tribes of Chehalis Indian Reservation v. Lujan, 928 F.2d 

1496, 1498 (9th Cir.1991)). The court must initially determine “whether complete 

relief can be afforded if the action is limited to the existing parties.” Id. (citations 

omitted). The court must next determine “whether the absent party has a legally 

protected interest in the subject of the action and, if so, whether the party’s absence 

will impair or impede the party’s ability to protect that interest or will leave an 

existing party subject to multiple, inconsistent legal obligations with respect to that 

interest.” Id. (citation and internal quotation marks omitted). “If the answer to 

either of those questions is affirmative, then the party is necessary and ‘must be 

joined.’” Id. (citing Fed. R. Civ. P. 19(a)(1)). The Rule 19(a) inquiry “is a practical 

one and fact specific.” Id. (citing Makah Indian Tribe v. Verity, 910 F.2d 555, 558 

(9th Cir. 1990)).

Second, a court must determine if it is feasible for the absentee party to be 

joined such that subject matter and personal jurisdiction is present and venue is 

proper. Peabody, 400 F.3d at 779 (citing Fed. R. Civ. P. 19(a)). Finally, if it is not 

feasible to join the absent party, under Rule 19(b), a court must decide “whether the 

case can proceed without the absentee, or whether the absentee is an ‘indispensable 

party’ such that the action must be dismissed.” Id.; Fed. R. Civ. P. 19(b). An 

indispensable party is one which “not only [has] an interest in the controversy, but 

an interest of such a nature that a final decree cannot be made without either 

affecting that interest, or leaving the controversy in such a condition that its final 

termination may be wholly inconsistent with equity and good conscience.” Id. at 

780 (quoting Shields v. Barrow, 58 U.S. 130, 139 (1855)); see also Fed. R. Civ. P. 

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19(b). 

The factors to be considered by a court in its Rule 19(b) analysis include: (1) 

the extent to which a judgment rendered in the person’s absence might prejudice 

that person or the existing parties; (2) the extent to which any prejudice could be 

lessened or avoided by protective provisions in the judgment, shaping the relief, or 

other measures; (3) whether a judgment rendered in the person’s absence would be 

adequate; and (4) whether the plaintiff would have an adequate remedy if the action 

were dismissed for nonjoinder. Fed. R. Civ. P. 19(b). 

 The moving party has the burden to show that dismissal is appropriate. 

Makah Indian Tribe, 910 F.2d at 558. The movant may satisfy the burden by 

providing affidavits as well as other relevant evidence outside the pleadings. 

McShan v. Sherrill, 283 F.2d 462, 464 (9th Cir. 1960); Citizen Band Potawatomi 

Indian Tribe of Okla. v. Collier, 17 F.3d 1292, 1293 (10th Cir. 1994). 

III. ANALYSIS 

Gemini moves to dismiss the Complaint under Federal Rule of Civil 

Procedure 12(b)(7) for failure to join all necessary and indispensable parties. 

Alternatively, under Rule 19 of the Federal Rules of Civil Procedure, Gemini asks 

this Court to compel Plaintiff to join “at least a representative group of insureds 

under each insurance policy at issue, or dismiss this action if joinder is not 

possible.” (Mot. at pp. 1-3.) 

Gemini argues that the rights of the absentee insureds under the Gemini 

Montecito Policy and the Gemini La Jolla Policy could be severely prejudiced by 

any declarations rendered by this Court. (Mot. at p. 7.) Specifically, Gemini 

contends that the Court’s determinations could force Gemini to withdraw its 

defense of several absentee insureds named in the Montecito Action and the La 

Jolla Action until all SIRs are paid, and/or force the absentee insureds to pay 

multiple SIRS before any coverage attaches. (Mot. at pp. 12-16.) Gemini further 

argues that the failure to join the absentee insureds could lead to further litigation 

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down the road leading to inconsistent interpretations of the same policies. (Id.) 

Plaintiff argues in response that “Gemini fails to explain what rights the insureds 

have under the Gemini Policy with regard to the relief sought by [Plaintiff].” (Opp. 

at p. 9.) Plaintiff contends that this Court can accord complete relief between 

Plaintiff and Gemini without joining any absentee insureds. (Opp. at p. 10.) 

A. Necessary Parties 

The Court must initially determine whether complete relief can be afforded if 

the action is limited to the existing parties, or if disposing of this action without 

absentee parties which claim an interest, as a practical matter, impairs or impedes 

the absentee party’s ability to protect the interest or leaves the existing parties 

subject to the substantial risk of incurring multiple or inconsistent obligations. Fed. 

R. Civ. P. 19(a)(1). The parties disagree on whether complete relief can be afforded 

without the absentee insureds under the Gemini Montecito Policy and the Gemini 

La Jolla Policy, and whether the absentee insureds claim an interest in this lawsuit. 

Gemini is particularly concerned about the absentee insureds named as defendants 

in the Montecito Action and the La Jolla Action. Those insureds include Lyon 

Realty Advisors, Inc., Lyon Management Group, Inc., Provence Apartments, LLC, 

Deca, LP, and Midwest General, Inc. (See ECF No. 9-14 (“Parry Decl.”) at ¶¶ 3-

10, Exs. 1 and 2.) These entities are both named defendants in the Montecito 

Action and the La Jolla Action and named insureds under the Gemini Montecito 

Policy and Gemini La Jolla Policy. (Id.; Compl. at Ex. A (ISOP 0023-24); Ex. C 

(ISOP 0106, 0172).)1

 1

 The Court takes judicial notice of the complaints filed in the Montecito 

Action and the La Jolla Action and the transcript for the oral argument on Gemini’s 

motion to dismiss in the Connecticut action. See Fed. R. Evid. 201(b), (c); Lee v. 

City of Los Angeles, 250 F.3d 668, 688-90 (9th Cir. 2001), overruled on other 

grounds by Galbraith v. Cnty. of Santa Clara, 307 F.3d 1119, 1125–26 (9th Cir. 

2002); Gozzi v. Cnty. of Monterey, 2014 WL 6988632, at *5 (N.D. Cal. Dec. 10, 

2014). 

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For purposes of this motion, the parties’ dispute centers around who is 

responsible for paying the SIR. Plaintiff argues that “pursuant to Gemini’s plain 

and unambiguous policy language, the first named insured (which has been named 

[in this action]) is responsible for the SIR amounts, ... and the insureds do not have 

the right to a defense where no SIR amounts have been paid.” (Opp. at p. 13, lines 

22-26.) Thus, Plaintiff argues, only the First Named Insureds may be affected by 

any ruling by this Court in this action. Gemini contends, on the other hand, that 

“[w]hile the first named insured is responsible for the SIR, Gemini has the right to 

seek reimbursement of the SIR from an insured implicated in the underlying claim.” 

(Reply at p. 3.) “Thus, all insureds, not only the first named insureds, have an 

interest in this action.” (Reply at p. 4.) In order to determine whether the absentee 

insureds have any interest in this lawsuit, and whether complete relief can be 

afforded if the action is limited to the existing parties, the Court finds it appropriate 

to examine whether Gemini may recover the SIR from any of the implicated 

insureds, or solely from the First Named Insured. 

Under California law,2

 contract interpretation is a matter of law for the 

 2

 A federal court sitting in diversity must apply state substantive law and 

federal procedural law. Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th Cir. 

2003) (citing Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996)). To 

determine the applicable substantive law, a federal court sitting in diversity applies 

the choice-of-law rules of the forum. Fields v. Legacy Health Sys., 413 F.3d 943, 

950 (9th Cir. 2005). California, the forum state, ordinarily examines the scope of a 

choice-of-law provision in a contract under the law designated in that contract. 

Wash. Mut. Bank, FA v. Super. Ct., 24 Cal.4th 906, 916 n. 3 (2001). Absent an 

express choice of applicable law by the parties, as is the case here, “[a] contract is 

to be interpreted according to the law and usage of the place where it is to be 

performed; or, if it does not indicate a place of performance, according to the law 

and usage of the place where it is made.” Welles v. Turner Entm’t Co., 503 F.3d 

728, 738 (9th Cir. 2007) (citing Cal. Civ. Code § 1646); see also Rutherford v. FIA 

Card Servs., N.A., 2012 WL 5830081, at *3-4 (C.D. Cal. Nov. 16, 2012) (applying 

test to determine “most significant relationship to the transaction and the parties” in 

the absence of an express choice of law provision). The policies concern 

construction projects and insureds in California. Thus, the Court finds it 

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judiciary. See Brinderson-Newberg Joint Venture v. Pacific Erectors, Inc., 971 

F.2d 272, 277 (9th Cir. 1992); Palmer v. Truck Ins. Exch., 21 Cal.4th 1109, 1115 

(1999). “The ordinary rules of contract interpretation apply equally to contracts of 

insurance.” Am. Alternative Ins. Corp. v. Sup. Ct., 135 Cal.App.4th 1239, 1245 

(2006). In California, “[a]ny contract must be construed as a whole, with the 

various individual provisions interpreted together so as to give effect to all, if 

reasonably possible or practicable.” City of Atascadero v. Merrill Lynch, Pierce, 

Fenner & Smith, Inc., 68 Cal. App. 4th 445, 473 (1998) (citing Cal. Civ. Code § 

1641; Cal. Code Civ. Proc. § 1858; 1 Witkin, Summary of Cal. Law (9th ed. 1987) 

Contracts, § 686, pp. 619–620). “Courts must interpret contractual language in a 

manner which gives force and effect to every provision, and not in a way which 

renders some clauses nugatory, inoperative or meaningless.” Id. (citations omitted); 

see also Palmer, 21 Cal.4th at 1115 (a court must “give effect to every part of the 

policy with each clause helping to interpret the other” (internal quotations and 

citations omitted)). In addition, when interpreting a policy provision, “[t]he words 

of a contract are to be understood in their ordinary and popular sense ... unless used 

by the parties in a technical sense, or unless a special meaning is given to them by 

usage.” Cal. Civ. Code § 1644; see also Palmer, 21 Cal.4th at 1115. 

“The fundamental goal of contractual interpretation is to give effect to the 

mutual intention of the parties.” City of Atascadero, 68 Cal. App. 4th at 473 (citing 

Cal. Civ. Code § 1636); see also Palmer, 21 Cal.4th at 1115. The mutual intention 

of the parties may be “determined by objective manifestations of the parties’ intent, 

including the words used in the agreement, as well as extrinsic evidence of such 

objective matters as the surrounding circumstances under which the parties 

negotiated or entered into the contract; the object, nature and subject matter of the 

contract; and the subsequent acts and conduct of the parties.” Id. at 474 (citations 

 

appropriate to apply California law. See Frontier Oil Corp. v. RLI Ins. Co., 153 

Cal.App.4th 1436, 1461-62 (2007). 

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omitted). 

The relevant sections in Gemini’s policies, which are contained in the 

respective SIR Endorsements, state: 

1. Under this endorsement, for purposes of determining which 

insured shall be responsible for the Self Insured Retention, the 

first named insured shall have the obligation and is ultimately 

responsible for paying the Self Insured Retention. 

... 

3. Upon our receiving Notice of any occurrence or claim, we shall 

have the right, but no obligation, in all cases, at our own 

expense, to assume control or defense of any claim, and upon 

our written request the implicated insured shall pay to us all or 

any portion of the Self Insured Retention we deemed reasonable 

or necessary. 

(Compl. at Exs. A and C, SIR Endorsements at §§ 1, 3.) The plain language of 

Section 1 of the SIR Endorsement provides that the First Named Insured is 

responsible for paying the SIR. However, under Section 3, Gemini has the right, at 

its own expense, to assume control or defense of a claim, and, upon doing so, may 

request the “implicated insured” to pay all or any portion of the SIR that Gemini 

deems reasonable or necessary. Gemini thus has the right to front the SIR and seek 

a reimbursement for the SIR amount from any “implicated insured,” not just the 

First Named Insured. 

Plaintiff’s interpretation of the SIR Endorsement would make Section 3 

superfluous and render it meaningless. Moreover, it would lead to an unworkable 

result, as is highlighted by the present situation, where the First Named Insured is 

missing, insolvent, or bankrupt and cannot or will not pay the SIR. To illustrate this 

point, if the Court were to apply Plaintiff’s interpretation to the present case, no 

named insured would be able to avail itself of Gemini’s policies. The First Named 

Insured under the Gemini Montecito Policy, Montecito Canyons,3

 cannot be 

 3

 The First Named Insured under the Gemini Montecito Policy is Montecito 

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located, and the First Named Insured under the Gemini La Jolla Policy, La Jolla 

Pacific, has not paid the SIR. (See Compl. at ¶¶ 12, 34, 43.) Only Deca, LP, which 

is a named insured and is being sued in the La Jolla Action, has paid the SIR. (See

Compl. at ¶¶ 32, 34, Ex. C at ISOP 0172.) Thus, if Plaintiff’s interpretation were 

correct, Deca, LP cannot pay the SIR, Gemini’s coverage (which would only attach 

once a SIR has been paid) has not kicked in, and Gemini may be within its rights to 

withdraw its defense, leaving Deca, LP and the other named insured defendants to 

fend for themselves. This result is not only inequitable, but does not appear to be 

the mutual intention of the parties. 

The mutual intention of the parties can be determined by the subsequent acts 

and conduct of the parties. City of Atascadero, 68 Cal. App. 4th at 473. Here, both 

Gemini and the named insureds, which are the parties to the contract, have operated 

under Gemini’s interpretation of the SIR Endorsement provisions. Gemini has 

invoked its right to defend in both underlying actions, subject to the right to obtain 

reimbursement of or seek an offset for the policies’ SIR, and Deca, LP, an 

implicated insured in the La Jolla Action, placed $100,000 into a trust account to 

fund the SIR. (Compl. at ¶¶ 30, 34.) Thus, it appears that while Section 1 clarifies 

for the insureds who is responsible for paying the SIR, Section 3 clearly provides a 

safety valve for Gemini to step in and assume control, including requesting the SIR 

from someone other than the First Named Insured, in its discretion. 

Interpreting the various contractual provisions so as to give effect to them all, 

and taking into consideration the parties’ apparent mutual intent, it follows that, 

upon receipt of notice of a claim or occurrence, Gemini is able to recover any 

portion of the SIR it deems necessary or reasonable from an implicated insured, not 

 

Canyons. Plaintiff so alleges in the Complaint, but then named Montecito 

Foothills, LLC as a Defendant in this action on the basis that it is the First Named 

Insured and refers to it as such in its motion. Neither party has explained or 

addressed this inconsistency. With regard to Montecito Foothills, LLC, it is no 

longer in business and does not have the funds to pay the SIR. (Mot. at pp. 4-5.) 

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just the First Named Insured. Hence, in addition to the First Named Insureds, 

Gemini may seek reimbursement of the SIRs from Lyon Realty Advisors, Inc., 

Lyon Management Group, Inc., Provence Apartments, LLC, Deca, LP, and 

Midwest General, Inc., who are implicated insureds not named in this lawsuit. The 

potential liability of these parties may be substantial as Plaintiff seeks a 

determination that there are multiple separate occurrences in the underlying actions.

Typically, when “the rights involved in litigation arise upon a contract” 

courts will not determine the rights of some of the parties to the contract if the other 

parties to the contract are not present. National Licorice Co., v. N.L.R.B., 309 U.S. 

350, 363 (1940) (citing Shields, 58 U.S. at 139; Carroll v. New York Life Ins. Co., 

94 F.2d 333, 335 (8th Cir. 1938)). This is particularly true in an action to set aside 

a contract, which is what Plaintiff is asking this Court in essence to do as to the 

absent insureds. See Lomayaktewa v. Hathaway, 520 F.2d 1324, 1325 (9th Cir. 

1975); see also Dawavendewa v. Salt River Project Agric. Improvement and Power 

Dist., 276 F.3d 1150, 1157 (9th Cir. 2002) (“[A] party to a contract is necessary, 

and if not susceptible to joinder, indispensable to litigation seeking to decimate that 

contract.”); Clinton v. Babbitt, 180 F.3d 1081, 1088 (9th Cir. 1999) (“[A] district 

court cannot adjudicate an attack on the terms of a negotiated agreement without 

jurisdiction over the parties to that agreement.”). 

Given the foregoing, the Court finds that it cannot grant complete and 

meaningful relief between the parties without the absent implicated insureds. See

Fed. R. Civ. P. (a)(1)(A); Disabled Rights Action Comm. v. Las Vegas Events, Inc., 

375 F.3d 861, 879 (9th Cir. 2004). In addition, the Court finds the declarations 

Plaintiff seeks in this matter clearly concern the rights and interests of the 

implicated insureds other than the First Named Insureds, and their rights would be 

impeded or impaired if they were not named in this lawsuit. Thus, the absent 

implicated insureds are necessary parties to this action under Rule 19(a)(1)(B)(i).

 Furthermore, the Court finds that the absent implicated insureds have an 

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interest in the controversy such that disposing of the action in their absence would 

leave Gemini with the substantial risk of incurring inconsistent obligations. See

Fed. R. Civ. P. 19(a)(1)(B)(ii). The substantial risk of the parties incurring 

inconsistent obligations arises because this judgment would not necessarily 

preclude the absent insureds from bringing their own suit against Gemini, or even 

against Plaintiff. Generally, a person is not bound by a judgment to which he or she 

was not a party. See Taylor v. Sturgell, 553 U.S. 880, 893 (2008) (citing Hansberry 

v. Lee, 311 U.S. 32, 40 (1940)).4

 A judgment in favor of Plaintiff, as Judge Chatingy from the U.S. District 

Court for the District of Connecticut noted, “would be a springboard for litigation 

involving the insureds.” (ECF No. 17-1, Ex. A at Attachment 1, p. 31:23-25.) In 

particular, a judgment for Plaintiff that declares there are multiple occurrences in 

the underlying actions may not bar the absent insureds from seeking a declaration 

that there is only one occurrence. This is because the absent insureds, which 

undoubtedly would only want to pay one SIR amount, are not parties to this action 

and thus may not be barred by res judicata from bringing future suit.5

 This creates 

a substantial risk that a future court interprets the policy such that the insureds only 

have to pay one SIR, which would leave Gemini with inconsistent determinations 

regarding how many SIRs must be paid before coverage attaches. Thus, the absent 

insureds are also necessary parties to this action under Rule 19(a)(1)(B)(ii). 

/// 

 4

 In general, six categories of exceptions exist to this rule; however, none 

appear to apply here. See Taylor, 533 U.S. at 893-96. 

5

 Of course, this argument works both ways. If the absent insureds were 

barred by res judicata from bringing suit to argue they only have to pay one SIR 

before coverage attaches, if the Court were to dispose of this action without the 

absent insureds, the Court may impair those insureds’ ability to protect their 

interests. If the Court does not join the absent parties as necessary parties at this 

time then it leaves open the possibility that the absent parties essentially never get 

their day in court. Therefore, the absent insureds are necessary parties either way. 

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B. Feasibility of Joinder 

Joinder appears feasible as to Lyon Realty Advisors, Inc., Lyon Management 

Group, Inc., Provence Apartments, LLC, Deca, LP, and Midwest General, Inc. The 

absent implicated insureds are subject to service of process and do not appear to 

destroy subject-matter jurisdiction if joined. Diversity jurisdiction requires 

complete diversity of citizenship between all plaintiffs and all defendants. 

Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). 

Here, Plaintiff is a Pennsylvania corporation with its principal place of 

business in New York. (Comp. at ¶ 4.) Gemini is a Delaware corporation with its 

principal place of business in Connecticut. (Id. at ¶ 5.) Montecito Foothills, LLC is 

a canceled Delaware limited liability company with its principal place of business 

in Santa Barbara, California. (Id. at ¶ 6.) Plaintiff alleges none of the members of 

Montecito Foothills, LLC are citizens of Pennsylvania or New York. (Id. at ¶ 8.) 

Provence Apartments, LLC is also a cancelled Delaware limited liability company 

located in Newport Beach, California. (ECF No. 9 at Ex. 3.)6

 Lyon Realty 

Advisors, Inc. and Lyon Management Group, Inc. are both California corporations 

located in Newport Beach, California. (Id. at Ex. 2.) La Jolla Pacific and Midwest 

General, Inc. are similarly California corporations with principal places of business 

in San Diego, California. (Compl. at ¶ 6; ECF No. 9 at Ex. 6.) Deca, LP is a 

California partnership located in San Diego, California.7

 (ECF No. 9 at Ex. 5.) As 

none of the Defendants appear to be citizens of Pennsylvania or New York, 

complete diversity of citizenship would appear to exist if the additional parties were 

 6

 The Court takes judicial notice of records from the California Secretary of 

State website attached by Gemini to its motion. See L’Garde, Inc. v. Raytheon 

Space and Airborne Sys., 805 F.Supp.2d 932, 937-38 (C.D. Cal. 2011); Fed. R. 

Evid. 201(b)(2). 

7

 A partnership is a citizen of all the states in which its members are citizens. 

Lincoln Property Co. v. Roche, 546 U.S. 81, 84 n. 1 (2005) (citing Carden v. 

Arkoma Associates, 494 U.S. 185, 189, 192–197 (1990)). This information is 

currently not available for Deca, LP. 

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joined. 

Moreover, all defendants would be subject to personal jurisdiction and 

service of process in California and venue is proper in the Southern District of 

California. A civil action may be brought in “a judicial district in which a 

substantial part of the events or omissions giving rise to the claim occurred, or a 

substantial part of property that is the subject of the action is situated.” 28 U.S.C. § 

1391(b)(2). Here, not only are several of the named insureds located in San Diego, 

California, but the La Jolla Action was filed in San Diego Superior Court and 

relates to a condominium project built in San Diego. 

Accordingly, the Court does not need to conduct an analysis under Rule 

19(b) to determine if the absent insureds are indispensable because joinder is 

feasible in this case. 

 C. Collateral Estoppel 

Lastly, Gemini raises issue preclusion or collateral estoppel in light of the 

dismissal by the U.S. District Court for the District of Connecticut. The Court finds 

collateral estoppel cannot be applied here for the following reasons. 

The preclusive effect of a federal court judgment is determined by federal 

common law. Taylor, 553 U.S. at 892. In diversity suits, federal common law 

incorporates the rules of preclusion applied by the State in which the rendering 

court sits. Id. at 892, n. 4 (citing Semtek Int’l Inc. v. Lockheed Martin Corp., 531 

U.S. 497, 508 (2001)). Therefore, any preclusive effect of a decision by the 

Connecticut district court, which sat in diversity, is governed by Connecticut law. 

See Taco Bell Corp. v. TBWA Chiat/Day Inc., 552 F.3d 1137, 1144 (9th Cir. 2009); 

Negrete v. Allianz Life Ins. Co. of N. Am., 2010 WL 4116852, at *3 (C.D. Cal. Aug. 

18, 2010); Cent. Garden & Pet Co. v. Scotts Co., 2002 WL 1457691 at *2 (N.D. 

Cal. June 26, 2002). 

In Connecticut, collateral estoppel or issue preclusion, “prohibits the 

relitigation of an issue when that issue was actually litigated and necessarily 

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determined in a prior action.” Conn. Natural Gas Corp. v. Miller, 239 Conn. 313, 

324 (1996) (internal quotations and citations omitted); Aetna Cas. & Sur. Co. v. 

Jones, 220 Conn. 285, 303, n. 19 (1991) (noting the issue must also be finally

decided). “For an issue to be subject to collateral estoppel, it must have been fully 

and fairly litigated in the first action. It also must have been actually decided and 

the decision must have been necessary to the judgment.” Aetna Cas. & Sur. Co., 

220 Conn. at 296 (internal quotations and citations omitted). 

A case that is dismissed for failure to join indispensable parties is not a 

judgment on the merits and does not have any preclusive effect. Univ. of Pittsburgh 

v. Varian Med. Sys., Inc., 569 F.3d 1328, 1332 (Fed. Cir. 2009) (citing Hughes v. 

United States, 71 U.S. 232, 237 (1866); Gilman v. Rives, 35 U.S. 298, 301-02 

(1836)). Here, the United States District Court for the District of Connecticut 

dismissed the case for failure to join indispensable parties, which is not adjudication 

on the merits. (ECF No. 17-1, Attachment 1, p. 32:15-17.) Thus, there is no 

preclusive effect with regard to the prior judgment. 

Moreover, “[i]n order for collateral estoppel to bar the relitigation of an issue 

in a later proceeding, the issue concerning which relitigation is sought to be 

estopped must be identical to the issue decided in the prior proceeding.” Aetna Cas. 

& Sur. Co., 220 Conn. at 297. While the prior district court dismissed for failure to 

join indispensible parties, the Court agrees that the court did not clearly find which 

parties – the First Named Insureds or all named insureds – were indispensible.8

 For 

that reason as well, the Court finds collateral estoppel does not apply here. 

/// 

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 The parties do not address Connecticut law, but rather federal law. (Mot. at 

p. 11; Opp. at p. 7.) However, under federal law, collateral estoppel also requires 

that the first proceeding end with a final judgment on the merits and the issue 

previously decided is identical to the one being re-litigated. See Hydranautics v. 

FilmTec Corp., 204 F.3d 880, 885 (9th Cir. 2000). 

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IV. CONCLUSION

 For the aforementioned reasons, the Court DENIES Defendant’s Motion to 

Dismiss for Failure to Join Indispensable Parties. However, pursuant to Rule 

19(a)(2) of the Federal Rules of Civil procedure, the Court ORDERS Plaintiff to 

file an amended complaint adding the absent insureds named in the two underlying 

actions, namely Lyon Realty Advisors, Inc., Lyon Management Group, Inc., 

Provence Apartments LLC, Deca, LP, and Midwest General, Inc. Plaintiff will 

have 30 days from the date of this Order to file an amended complaint. 

IT IS SO ORDERED. 

DATED: December 30, 2014 

 

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