Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-01548/USCOURTS-casd-3_05-cv-01548-0/pdf.json

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

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The summary of events leading to the underlying action, its procedural history, and

summary of appellate arguments are taken from the Appellant’s opening brief in the underlying

action. Jacqueline Helleis v. 350 W.A. LLC and David Blackburn, case no. D047058, California

Court of Appeal, Fourth Appellate District, Division One. (Plaintiff’s exhibit A)

05cv1548

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CENTURY SURETY COMPANY,

Plaintiff,

v.

350 W.A., LLC, et al.,

Defendant.

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Civil No. 05-CV-1548-L(LSP)

ORDER DENYING APPLICATION

FOR AN ORDER STAYING

ACTION [doc. #51]

Defendant 350 W.A., LLC (hereinafter “350”) requests an order staying the action. The

ex parte application has been fully briefed. For the reasons set forth below, the Court enters the

following decision.

Factual Background

Defendant 350's principal, David Blackburn (“Blackburn”), purchased a building at 350

West Ash Street in San Diego.1

 Jacqueline Helleis was leasing space in the building for her

business, Flagship Research. During escrow, the building sustained significant damage due to

multiple flooding incidents. Nevertheless, Blackburn completed the purchase and immediately

thereafter transferred the property to 350. Due to environmental and fire safety concerns, among

Case 3:05-cv-01548-L-BGS Document 56 Filed 05/30/07 Page 1 of 7
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other problems with the building, on May 15, 2003, Blackburn advised the building tenants he

was terminating their leases. On June 12, 2003, Jacqueline Helleis filed a complaint against 350

and David Blackburn in the San Diego Superior Court (“underlying action”). Ultimately the

case included causes of action for breach of contract, breach of the covenant of good faith and

fair dealing, breach of the covenant of quiet enjoyment, constructive eviction, nuisance, and

declaratory relief. 

The Helleis bench trial concluded on June 27, 2005. The court dismissed the causes of

action for nuisance and declaratory relief. Blackburn was exonerated on all claims, but Helleis

was successful in the remaining causes of action against 350. The trial court awarded Helleis

damages in the amount of $504,823.44. On July 8, 2005, 350 tendered a claim for defense and

indemnity to Century Surety Company (“Century”). (Complaint at 8) Four days later, the state

court entered the judgment against 350. On July 27, 2005, Century sent 350 notice it would

defend the company in post-judgment and appellate proceedings under a reservation of rights. 

(Complaint at 8)

Century, Plaintiff here, subsequently filed the above-captioned case in this Court on

August 3, 2005, for declaratory judgment and reimbursement of attorney’s fees and costs. 

Plaintiff seeks a declaration of its rights and duties under the policy it issued to Defendant 350,

and contends it has no obligation to defend or indemnify. (Complaint at 8) Defendant 350 filed

an answer on October 3, 2005. (Answer, doc. #8) 350 and Blackburn filed a counterclaim for

declaratory relief, breach of written contract, and breach of the implied covenant of good faith

and fair dealing on October 3, 2005. (Counterclaim, doc. #9)

350 filed an appeal in the underlying action in April 2006. In the appeal, 350 claims the

trial court erred in both its interpretation and application of the lease provisions, and its finding

that 350 breached the lease. 350 also contends the damage award was improperly calculated and

was not based on substantial evidence.

In the instant declaratory action, Plaintiff Century has three motions pending, including a

motion for summary judgment, a motion to amend the complaint, and a motion for entry of

judgment. All three motions have been fully briefed.

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Jacqueline Helleis, individually and dba Flagship Research are also defendants in the

instant action, but have taken no position in this ex parte application.

3 05cv1548

Defendant 350 requests an order staying the action to await the final outcome of the statecourt appeal.2

 The appeal is scheduled for oral argument on May 17, 2007. (Decl. of Yarling at

2) Defendant 350 contends that a stay of the federal declaratory action is appropriate because

the outcome of the state appeal “stands to drastically affect the scope of the issues” and

Plaintiff’s coverage defenses. (App. at 2) The Court disagrees.

Legal Standard

A federal court has broad discretion to stay or dismiss declaratory judgment actions filed

pursuant to 28 U.S.C. § 2201(a) when a state court proceeding “presenting the same issues, not

governed by federal law, between the same parties,” is pending. Brillhart v. Excess Ins. Co. Of

America, 316 U.S. 491, 495 (1942). If the action involves solely state law issues, proceeding

with the declaratory action “might be indulging in gratuitous interference.” Wilton v. Seven Falls

Co., 515 U.S. 277, 283 (1995). 

In determining whether to exercise its discretion to stay or dismiss the action, the Brillhart

factors remain the philosophic touchstone for the district court. Government Employees Ins. Co.

v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998). “The district court should avoid needless

determination of state law issues; it should discourage litigants from filing declaratory actions as

a means of forum shopping; and it should avoid duplicative litigation.” Id. (internal citations

omitted). “Practicality and wise judicial administration” are appropriate considerations. Wilton,

515 U.S. at 288.

In the insurance context, when an insurer brings a declaratory relief action in the district

court to determine its obligation to defend or indemnify its insured, while a state court action to

resolve the same issue of coverage between the same parties is pending, a stay or dismissal of the

declaratory relief action is proper. Wilton v. Seven Falls Co., 515 U.S. at 283; Aetna Casualty &

Surety Co. V. Merritt, 974 F.2d 1196, 1199 (9th Cir. 1992). The fact that the issues are not

identical or one party in the federal action is not a party in the state action does not, however,

preclude the court from issuing a stay. Polido v. State Farm Mutual Auto Ins. Co., 110 F.3d

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1418, 1423 (9th Cir. 1997) (overruled on other grounds in Dizol, 133 F.3d 1220). “However,

there is no presumption in favor of abstention in declaratory actions generally, nor in insurance

coverage cases specifically.” Dizol, 133 F.3d at 1225.

Discussion

In this declaratory action, Plaintiff seeks a determination of its obligation to defend and

indemnify Defendants. In American States Ins. Co. v. Kearns, 15 F.3d 142, 145 (9th Cir. 1994),

the Ninth Circuit declared, “there is no per se rule against the district court exercising its

jurisdiction to resolve an insurance coverage dispute when the underlying liability suit is pending

in state court.” Plaintiff is not a party to the underlying state court action, Jacqueline Helleis v.

350 W.A. LLC and David Blackburn, nor does that action address the issue of coverage. 

Therefore, this Court may deny the stay without “indulging in gratuitous interference.” Wilton,

515 U.S. at 283. 

 Moreover, a stay is not necessary to avoid “needless determination of state law issues” in

the instant case. Accordingly, the first Brillhart factor weighs in favor of denying the stay. The

coverage issue in the instant declaratory action “bears only a remote resemblance” to the

underlying action in state court. See State Farm Fire & Casualty Co. v. Thomas, 756 F. Supp.

440, 442 (D. Cal. 1991). Plaintiff’s claim that it is not obligated to defend and indemnify

Defendant 350 is based on the terms and conditions of the policy and exclusionary provisions

therein. These coverage issues are independent of the liability issues in the pending state action. 

See American Casualty Co. v. Krieger, 181 F.3d 1113, 1119 (9th Cir. 1999); Charter Oak Fire

Ins. Co. v. American Home Assurance Co., et al., No. C-06-2779, 2006 U.S. Dist. LEXIS 81422,

14-16 (N.D. Cal. 2006). Despite Defendant 350’s argument otherwise, the results of the pending

state appeal are unnecessary to make a coverage determination in the instant case, which will

primarily be resolved by contract interpretation. See State Farm, 756 F. Supp. at 442. The

coverage issue and whether Plaintiff is entitled to recover expenses for prosecution of the appeal

will remain a necessary determination irrelevant to the outcome of the state appeal.

Defendant 350 contends that Plaintiff’s coverage defense argument that Defendant

breached the notice and cooperation provisions of the policy depends on the outcome of the

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underlying action. (App. at 7) Defendant first asserts that if the judgment in Helleis is reversed

on appeal, Plaintiff’s arguments underlying its requisite claim of substantial prejudice will

“disappear.” (App. at 7-8) However, a change in the final outcome does not undo what has or

has not occurred prior to that determination. Plaintiff’s arguments regarding substantial prejudice

from Defendant 350’s delayed tender of the state action are based on facts that have already

occurred. For instance, Plaintiff contends the late tender prevented an independent investigation

of the underlying evidence because Defendant 350 reconstructed the building prior to giving

notice of the liability claim. (MSJ at 18-19) The bases for Plaintiff’s arguments will not

disappear, even if the state appellate court reverses. Defendant 350 incorrectly concludes that if

the final outcome of the appeal is a reversal, it will be impossible for Plaintiff to argue it could

have obtained a better outcome. (App. at 7) 

Defendant 350 also contends that Plaintiff’s defense based on the policy exclusion for

liability arising out of breach of contract is dependent on the outcome of the underlying action. 

(App. at 9) Again, coverage and liability issues are separate, and an interpretation of the contract

provisions does not depend on the state court’s determinations as to liability. 

Defendant further contends that Plaintiff’s motion for entry of judgment based on the

agreement to procure an appeal bond depends on the outcome of the underlying action. (App. at

8) However, this Court’s necessary determination of whether that agreement was breached, and

therefore the stipulated agreement to enter judgment should be enforced, or whether as Defendant

claims, performance is impossible, does not depend on any facts the state court will be

determining in the appeal. The fact that the bond may be released if Defendant’s appeal in the

underlying action is successful does not convince the Court that a stay in the instant action would

comport with the fair administration of justice.

The second Brillhart factor, the desire to discourage forum shopping via federal

declaratory actions, does not weigh in favor of either denying or ordering a stay in the instant

action. There is no evidence or accusation of forum shopping. See Charter Oak Fire Ins. Co. at

16 (citing Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d 800, 804 (9th Cir. 2002)). 

The third Brillhart factor, the desire to avoid duplicative litigation, weighs in favor of

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denying the request to stay the action. As previously discussed, the underlying state court action

does not involve the same parties or the same issues. In the appeal of the underlying action, 350

is challenging the state trial court’s determinations regarding provisions of the lease agreement

and the calculation of damages. In this action, the Court’s primary task will be to interpret the

insurance contract provisions under which Plaintiff contends it is not obligated to defend and

indemnify Defendant in the underlying action. Proceeding in the instant action will not result in

duplicative litigation.

Defendant additionally contends “considerations of fairness, judicial efficiency, [and]

practicality” support staying the action. (App. at 7) These are appropriate considerations. 

Wilton, 515 U.S. at 288; Kearns, 15 F.3d at 144. However, the parties have been litigating the

instant action in this Court since August 3, 2005. It would hardly be fair, efficient, or practical to

stay the action without compelling reasons after nearly two years of litigation with three motions

pending and fully briefed. Due to the fact that none of the Brillhart factors favor a stay, the Court

finds no compelling reasons to grant defendant’s requested relief.

Conclusion

Based on the foregoing, IT IS ORDERED denying Defendant 350's application for an

order staying the action. [doc. #51]

IT IS SO ORDERED.

DATED: May 30, 2007

M. James Lorenz

United States District Court Judge

COPY TO: 

HON. LEO S. PAPAS

UNITED STATES MAGISTRATE JUDGE

ALL PARTIES/COUNSEL

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