Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_17-cv-01776/USCOURTS-casd-3_17-cv-01776-0/pdf.json

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

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

BLACK MOUNTAIN CENTER, L.P.,

and TIMOTHY HAIDINGER

Plaintiff,

v.

FIDELITY AND DEPOSIT

COMPANY OF MARYLAND

Defendants.

 

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CASE NO. 17cv1776 JM(JLB) 

ORDER DENYING MOTION TO

DISMISS

Pursuant to Fed. R. Civ. P. 12(b)(6), Defendant Fidelity and Deposit Company of

Maryland (“Fidelity”) moves to dismiss the action on grounds that the complaint fails to

adequately allege that Fidelity owed a duty to defend Plaintiffs Black Mountain Center, L.P.

(“BMC”) and its president, Timothy Haidinger (“Haidinger”), in the underlying state court

action. Plaintiffs oppose the motion. Pursuant to Local Rule 7.1(d)(1), the court finds the

matters presented appropriate for decision without oral argument. For the reasons set forth

below, the court denies the motion to dismiss.

 BACKGROUND

On September 1, 2017, Plaintiffs commenced this diversity bad faith insurance action

by alleging two claims for breach of contract (failure to pay defense and settlement costs)

and a claim for tortuous breach of the implied covenant of good faith and fair dealing. 

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Plaintiffs bring this action by alleging that Fidelity wrongfully and unreasonably refused to

defend them against a claim of constructive eviction. Plaintiffs seek an award of punitive

damages.

BMC owns the Haidinger Center, a four building, 3.89 acre site located in San Diego,

CA. BMC leases space to tenants for professional, retail, commercial, and light

manufacturing purposes. Fidelity, a Maryland corporation, provided business and liability

insurance coverage for the property. On May 28, 2014, BMC entered into a lease with

Victoria DuPont and Jeff Droege (“Tenants”) for the express purpose to operate a medical

marijuana dispensary.

Prior to executing the lease, Haidinger allegedly informed Tenants that they could

operate the dispensary upon receipt of a Conditional Use Permit (“CUP”) from the City of

San Diego. Haidinger also represented that he would sign the CUP, a prerequisite for the

issuance of a final CUP. After expending substantial time, money, and resources, on

March 12, 2015, the San Diego Planning Commission approved the CUP. On June 11,

2015, DuPont met with property owner Tim Haidinger to

discuss the required signatures for the CUP and implementing the

conditions imposed by the City’s Planning Commissioners. Haidinger has

refused to sign the CUP and notified DuPont that he is terminating the

Lease effective July 11, 2015.

(July 10, 2015 Tender Letter, Compl. Exh. A 003).

On July 10, 2015, Haidinger received a demand letter from Tenants requesting the

sum of $500,000 in damages or, alternatively, a revised lease that would permit them to

operate a marijuana dispensary. (Compl. ¶ 10). The demand letter identified potential

claims for intentional misrepresentation, interference with prospective economic advantage,

and breach of contract.

The Policy

Fidelity, a Maryland corporation, issued a Premier Building Owners Package Policy

(“Policy”) to BMC and Mr. Haidinger, designated by policy number 2761644, and in effect

between December 4, 2014 and December 4, 2015 (the “Policy”). The Policy has applicable

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limits of $5,000,000 per occurrence or act, and a deductible of $10,000. Among other

things, the Policy provided a defense and indemnity against a claim for personal injury that

arises out of the ownership, maintenance or use of an insured premises as a rental property

or as vacant land. (Compl. ¶ 6). The Policy provided bodily injury and property damages

coverage under the premises liability provisions; and personal injury and advertising

damages coverage under the personal injury and advertising injury provisions. The Policy

also provided the following exclusions:

A. arising out of oral or written publication of material if done by or at the 

direction of any insured with knowledge of its falsity.

D. arising out of fraud committed by any insured.

F. caused by the willful act of any insured but sums awarded as damages because

of negligence are not excluded.

(Ward Decl. Exh A). 

The parties primarily focus on the wrongful eviction provision in the Policy. The

Policy also defined personal injury as follows:

 18. Personal Injury means injury other than bodily injury arising out of one or

more of the following acts:

 c. wrongful entry into premises that a person or organization occupies or

wrongful eviction of a person or organization from premises that the person or

organization occupies.

(Ward Decl. Ex. "A" at p. 53; Compl. 8). The Policy does not define the term “wrongful

eviction.”

Fidelity’s First Denial of Coverage

Plaintiffs tendered the pre-suit demand to Fidelity and, on July 29, 2015, Fidelity

denied the claim stating that Ms. DuPont did not base any theory of recovery on any injury

arising out of any act within the definition of personal injury in the Policy. (Compl. ¶ 15). 

Fidelity also indicated that the claims were barred by the personal injury, fraud, and willful

act exclusions in the Policy.

The State Court Action

On August 14, 2015, Tenants commenced an action against Plaintiffs in San

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Diego Superior Court. The complaint alleged that Plaintiffs denied Tenants’ quiet

enjoyment of the property and breached the lease. Tenants sought damages in the amount

of $3,200,000, plus interest and attorneys’ fees. After the denial of coverage, Plaintiffs

funded the defense costs and, ultimately, the settlement of Tenants’ claims.

On April, 25, 2016, Tenants provided Plaintiffs with a Notice of Termination of

Lease. The Notice stated that Plaintiffs had frustrated the express purpose of the Lease,

breached the covenant of quiet enjoyment, and constructively evicted Tenants from the

property. (Compl. ¶ 20). The Tenants represented that they would pay rent through the end

of April 2016 and surrender possession on or about May 9, 2016. 

Fidelity’s Second Denial of Coverage

On March 10, 2016, after receipt of the second amended complaint, Plaintiffs

retendered the defense to Fidelity. On April 18, 2017, Fidelity responded that neither the

original demand letter nor the second amended complaint potentially seek damages covered

by the Fidelity policy, including under the wrongful eviction provision.

(Compl. Exh. D at 020).

DISCUSSION

Legal Standards

Fed.R.Civ.P. 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) dismissal is proper only in "extraordinary"

cases. United States v. Redwood City, 640 F. 2d 963, 966 (9th Cir. 1981). Courts should

grant 12(b)(6) relief only where a plaintiff's complaint lacks a "cognizable legal theory" or

sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901

F. 2d 696, 699 (9th Cir. 1990). Courtsshould dismiss a complaint for failure to state a claim

when the factual allegations are insufficient to raise a right to relief above the speculative

level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (the complaint’s

allegations must “plausibly suggest[]” that the pleader is entitled to relief); Ashcroft v. Iqbal,

556 U.S. 662 (2009)(under Rule 8(a), well-pleaded facts must do more than permit the court

to infer the mere possibility of misconduct). The plausibility standard is not akin to a

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‘probability requirement’, but it asks for more than a sheer possibility that a defendant has

acted unlawfully.” Id. at 678. Thus, “threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.” Id. The defect must

appear on the face of the complaint itself. Thus, courts may not consider extraneous

material in testing its legal adequacy. Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482

(9th Cir. 1991). The courts may, however, consider material properly submitted as part of

the complaint. Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542, 1555 n.19

(9th Cir. 1989). 

Finally, courts must construe the complaint in the light most favorable to the plaintiff. 

Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 116 S. Ct. 1710

(1996). Accordingly, courts must accept as true all material allegations in the complaint,

as well as reasonable inferences to be drawn from them. Holden v. Hagopian, 978 F.2d

1115, 1118 (9th Cir. 1992). However, conclusory allegations of law and unwarranted

inferences are insufficient to defeat a Rule 12(b)(6) motion. In Re Syntex Corp. Sec. Litig.,

95 F.3d 922, 926 (9th Cir. 1996).

 General State Law Insurance Principles

Ordinary rules of contract interpretation apply to insurance contracts. The

fundamental goal of contractual interpretation isto give effect to the mutual intention of the

parties. If the contractual language is clear and explicit, it governs. Bank of the West v.

Superior Court (Industrial Indemnity Co.), 2 Cal. 4th 1254 (1992). Where exclusions are

clear, plain, and conspicuous, they will be enforced. Malcolm v. Farmers New World Life

Ins. Co., 4 Cal.App.4th 296, 3045 (1992). If the policy provision is unambiguous, i.e., has

only one reasonable construction, it must be interpreted according to this plain meaning. 

But if a policy provision is ambiguous, the ambiguous terms are resolved in the insureds'

favor, consistent with the insureds' reasonable expectations. Id. at 1149 (quoting Safeco Ins.

Co. v. Robert S., 26 Cal.4th at p. 761.)

The Court of Appeal succinctly summarized, and distinguished, the duty to defend

from the duty to indemnify:

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[A]n insurer has a duty to defend an insured if it becomes aware of, or if

the third party lawsuit pleads, facts giving rise to the potential for

coverage under the insuring agreement. This duty, which applies even to

claims that are 'groundless, false, or fraudulent, is separate from and

broader than the insurer's duty to indemnify. [T]he determination whether

the insurer owes a duty to defend usually is made in the first instance by

comparing the allegations of the complaint with the terms of the policy.

But whether a particular claim falls within the coverage afforded by a

liability policy is not affected by the form of the legal proceeding [or] the

legal theory asserted by the injured party. The scope of the duty does not

depend on the labels given to the causes of action in the third party

complaint; instead it rests on whether the alleged facts or known extrinsic

facts reveal a possibility that the claim may be covered by the policy.

Cunningham v. Universal Underwriters, 98 Cal.App.4th 1141, 1147-48 (2002)

(citations and quotations omitted).

The Motion

At the outset, the court notes that the present motion to dismiss is not the appropriate

procedural vehicle to determine potentially disputed issues of fact or law. In pertinent part,

the limited record before the court, and the legal standard on a motion to dismiss, caution

against resolving Fidelity’s arguments on the present motion. Accordingly, the court denies

the motion to dismiss.

In the main, the focus of Plaintiffs is on the wrongful eviction component for

coverage under the “personal injury” provision, also defined as:

 c. wrongful entry into premises that a person or organization occupies

or wrongful eviction of a person or organization from premises that

the person or organization occupies.

(Ward Decl. Ex. "A" at p. 53; Compl. ¶ 8). The term “wrongful eviction” is not defined in

the Policy. However, the Court of Appeal in Cunningham, 98 Cal.App.4th 1141, judicially

construed the term wrongful eviction. The Court of Appeal applied a “commonly

understood meaning of the word - an eviction requires that a person first be in actual

possession of real property, and then be removed from that property.” Id. at 1149. The

Court of Appeal also noted that a constructive eviction claim may arise when the landlord

engages in acts that render the premises unfit for occupancy for the purpose for which it was

leased, or deprive the tenant of the beneficial enjoyment of the premises. Id. at 1150. 

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While Plaintiffs argue in hindsight that Tenants claimed they were constructively

evicted from the premises, it does not appear that Tenants set forth any basis for a

constructive eviction claimuntil April 25, 2016, when Tenants’ counsel allegedly informed

Plaintiffs’ counsel of a potential constructive eviction claim. (Compl. Exh. C). However,

it does not appear that this information was provided to Fidelity until March 10, 2017, 

(Compl. Exh. D), nearly three years after commencement of the lease on May 28, 2014, and

almost two years after Haidinger terminated the lease effective July 11, 2015.

In short, at this point in the proceeding, the record requires further development to

comprehensively address the issues presented. For example, it is unclear from the

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authorities cited by the parties whether a constructive eviction remedy is even available

when the damagessought by Tenants appear to relate solely to Haidinger’s alleged material

breach of the lease when he refused to sign the CUP on or about June 11, 2015. Further, as

noted in Cunningham, “to invoke a constructive eviction defense or remedy, the aggrieved

tenants must surrender or vacate within a reasonable time after the landlord's material

interference with the lease.” 98 Cal. App.4th at 1153 (quoting Friedman, et al., Cal. Practice

Guide: Landlord - Tenant (The Rutter Group 2001), ¶ 7:298, p. 7-61). Here, it appears that

Tenants remained in possession of the premises for almost ten months before surrendering

the space. Further development of the record and analysis of relevant authorities will assist 2

the parties and court in reaching informed determinations.

In sum, the motion to dismiss is denied.

IT IS SO ORDERED.

DATED: February 2, 2018

 Hon. Jeffrey T. Miller

 United States District Judge

While it is appropriate to consider materials incorporated into the complaint, see Hal Roach 1

Studios, 896 F.2d at 1555, the court notes that neither the Complaint’s allegations nor the exhibits

attached to the Complaint have any evidentiary value relevant to any issue raised by the parties.

The court notes that the Complaint also alleges the BMC, after terminating the lease, reinstated 2

the lease at some point in time.

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