Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_11-cv-00740/USCOURTS-caed-2_11-cv-00740-1/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

EASTERN DISTRICT OF CALIFORNIA

ALLIED PROPERTY AND CASUALTY No. 2:11-cv-00740-MCE-KJN

INSURANCE COMPANY,

Plaintiff,

v. MEMORANDUM AND ORDER

ALVIN ROBERTS, SHIRLEY

ROBERTS, ALFONSO GARCIA,

JESSIE HERNANDEZ, ALBERT HUNG,

MANUEL A.P. GONZALES AND

ALLSTATE INSURANCE COMPANY,

Defendants.

----oo0oo----

Through this action, Plaintiff Allied Property and Casualty

Insurance Company (“Allied”) seeks rescission of a homeowners

policy issued to its insureds, Defendants Alvin and Shirley

Roberts (“the Robertses”), and a declaratory judgment that it

owes no coverage for two tort actions brought against the

Robertses in Sacramento County Superior Court. 

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Allied further seeks a judicial declaration of the rights,

duties, obligations and interests of all the parties regarding

the action, including the rights, duties, obligations and

interests of Defendant Allstate Insurance Company (“Allstate”)

pursuant to the Declaratory Judgment Act. 28 U.S.C. § 2201(a)

(2006). Presently before the Court is Allstate’s Motion to

Dismiss Allied’s Complaint for lack of subject matter

jurisdiction, pursuant to Federal Rule of Civil Procedure

12(b)(1). Allstate’s Motion was filed on April 18, 2011. 1

(Def.’s Mot. to Dismiss, ECF No. 6.) Allied filed a timely

opposition to Allstate’s Motion on May 26, 2011, (Pl.’s Opp’n,

ECF No. 16), and Allstate filed a timely reply (Def.’s Reply, ECF

No. 22). For the reasons set forth below, Allstate’s Motion to

Dismiss is denied.

BACKGROUND2

This action arises from a dispute over insurance coverage

for a fire that took place on September 16, 2008, in a warehouse

on a property in Galt, California, owned by the Robertses. The

fire caused property damage and two fatalities. As a result, two

tort actions were brought against the Robertses, as indicated

above. 

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 All further references to “Rule” or “Rules” are to the 1

Federal Rules of Civil Procedure unless otherwise noted.

 The factual assertions in this section are based on the 2

allegations in Plaintiff’s Complaint unless otherwise specified. 

(See Pls.’ Compl., Mar. 18, 2011, ECF No. 2.)

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At the time of the fire, a policy of liability insurance was

in effect for the home that was located on the Galt property. 

That policy was issued by Allied to the Robertses. Two

additional homeowners insurance policies were also issued by

Allied to the Robertses. 

According to Allied, the Robertses failed to disclose to

Allied the existence of the warehouse, as well as the fact that

business activities were being conducted there. Allied claims

that material misrepresentations in that regard entitle Allied to

rescind the insurance policies it issued to the Robertses. 

Allied also alleges that it is not obligated to defend the

Robertses against the tort actions brought in state court,

because its policies do not cover injuries or property damage

arising from business activities conducted on an insured

location, nor do they cover injuries occurring at uninsured

locations.

At the time of the fire, the Robertses were also insured

under a Personal Umbrella Policy issued by Allstate. Allied

alleges that if its policy is rescinded or if the Court

determines that Allied is not obligated to defend the Robertses

against the underlying actions, Allstate’s policy may “drop down”

and “afford defense and indemnity” to the Robertses. As such,

Allstate’s interests may be impacted by the outcome of Allied’s

action against the Robertses. Accordingly, Allied named Allstate

as an additional defendant in this lawsuit. As indicated above,

it is Allstate’s Motion to Dismiss for lack of subject matter

jurisdiction that is now before the Court for adjudication.

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STANDARD

Federal courts are courts of limited jurisdiction, and are

presumptively without jurisdiction over civil actions. Kokkonen

v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). The

burden of establishing the contrary rests upon the party

asserting jurisdiction. Id. Because subject matter jurisdiction

involved a court’s power to hear a case, it can never be

forfeited or waived. United States v. Cotton, 535 U.S. 625, 630

(2002). Accordingly, lack of subject matter jurisdiction may be

raised by either party at any point during the litigation,

through a motion to dismiss pursuant to Federal Rule of Civil

Procedure 12(b)(1). Arbaugh v. Y&H Corp., 546 U.S. 500, 506

(2006); see also Int’l Union of Operating Eng’rs v. Cnty. of

Plumas, 559 F.3d 1041, 1043-44 (9th Cir. 2009). Lack of subject

matter jurisdiction may also be raised by the district court sua

sponte. Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583

(1999). Indeed, “courts have an independent obligation to

determine whether subject matter jurisdiction exists, even in the

absence of a challenge from any party.” Id.; see Fed. R. Civ. P.

12(h)(3) (requiring the court to dismiss the action if subject

matter jurisdiction is lacking).

There are two types of motions to dismiss for lack of

subject matter jurisdiction: a facial attack, and a factual

attack. Thornhill Publ’g Co. v. Gen. Tel. & Elec. Corp., 594

F.2d 730, 733 (9th Cir. 1979). 

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Thus, a party may either make an attack on the allegations of

jurisdiction contained in the nonmoving party’s complaint, or may

challenge the existence of subject matter jurisdiction in fact,

despite the formal sufficiency of the pleadings. Id. 

When a party makes a facial attack on a complaint, the

attack is unaccompanied by supporting evidence, and it challenges

jurisdiction based solely on the pleadings. Safe Air for

Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). If the

motion to dismiss constitutes a facial attack, the Court must

consider the factual allegations of the complaint to be true, and

determine whether they establish subject matter jurisdiction.

Savage v. Glendale High Union Sch. Dist. No. 205, 343 F.3d 1036,

1039 n.1 (9th Cir. 2003). In the case of a facial attack, the

motion to dismiss is granted only if the nonmoving party fails to

allege an element necessary for subject matter jurisdiction. Id. 

However, in the case of a facial attack, district courts “may

review evidence beyond the complaint without converting the

motion to dismiss into a motion for summary judgment.” Safe Air

for Everyone, 373 F.3d at 1039. 

In the case of a factual attack, “no presumptive

truthfulness attaches to plaintiff’s allegations.” Thornill,

594 F.2d at 733 (internal citation omitted). The party opposing

the motion has the burden of proving that subject matter

jurisdiction does exist, and must present any necessary evidence

to satisfy this burden. St. Clair v. City of Chico, 880 F.2d

199, 201 (9th Cir. 1989). 

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If the plaintiff’s allegations of jurisdictional facts are

challenged by the adversary in the appropriate manner, the

plaintiff cannot rest on the mere assertion that factual issues

may exist. Trentacosta v. Frontier Pac. Aircraft Ind., Inc.,

813 F.2d 1553, 1558 (9th Cir. 1987) (quoting Exch. Nat’l Bank of

Chi. v. Touche Ross & Co., 544 F.2d 1126, 1131 (2d Cir. 1976)). 

Furthermore, the district court may review any evidence

necessary, including affidavits and testimony, in order to

determine whether subject matter jurisdiction exists. McCarthy

v. United States, 850 F.2d 558, 560 (9th Cir. 1988); Thornhill,

594 F.2d at 733. If the nonmoving party fails to meet its burden

and the court determines that it lacks subject matter

jurisdiction, the court must dismiss the action. Fed. R. Civ. P.

12(h)(3).

ANALYSIS

In the present case, Allstate asserts that Allied’s

pleadings fail to establish the existence of a justiciable case

or controversy between the two parties, and thus the Court lacks

subject matter jurisdiction. (Def’s Mot. to Dismiss, 3:26, ECF

No. 6.) Allstate’s Motion to Dismiss constitutes a facial

attack, as Allstate asserts that Allied’s allegations are

insufficient on their face because they fail to establish the

existence of a case or controversy. Accordingly, as delineated

above, the Court must consider the factual allegations of

Allied’s complaint to be true, and determine whether the facts as

pleaded establish subject matter jurisdiction. 

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The Declaratory Judgment Act (“the Act”) states that “in a

case of actual controversy within its jurisdiction...any court of

the United States, upon the filing of an appropriate pleading,

may declare the rights and other legal relations of any

interested party seeking such declaration, whether or not further

relief is or could be sought.” 28 U.S.C. § 2201(a). 

Accordingly, the Ninth Circuit has “long held that the district

court must first inquire whether there is an actual case or

controversy within its jurisdiction. Second, if the court finds

that an actual case or controversy exists, the court must decide

whether to exercise its jurisdiction....” Principal Life Ins.

Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005)(internal

citation omitted). 

A. Existence of Actual Case or Controversy

The Act requires the existence of an actual case or

controversy in order for a district court to exercise its subject

matter jurisdiction. 28 U.S.C. § 2201(a); Principal Life Ins.

Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005) (citing Am.

States Ins. Co. v. Kearns, 15 F.3d 142 (9th Cir. 1994)). 

However, there is no bright line test for determining whether an

actual controversy exists under the Declaratory Judgment Act. 

MedImmune, Ind. v. Genentech, Inc., 549 U.S. 118, 127 (2007); 

Maryland Cas. Co. v. Pac. Coal & Oil Co., Inc., 312 U.S. 270, 273

(1941). 

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The Supreme Court has stated that the question is essentially

“whether the facts alleged, under all the circumstances, show

that there is a substantial controversy, between parties having

adverse legal interests, of sufficient immediacy and reality to

warrant the issuance of a declaratory judgment.” Maryland Cas.

Co., 312 U.S. at 273. Stated another way, “a justiciable case or

controversy exists if a declaration would affect substantive

legal rights of the parties.” Mason v. Genisco Tech. Corp.,

960 F.2d 849, 853 (9th Cir. 1992) (citing Hillblom v. United

States, 896 F.2d 426, 430 (9th Cir. 1990)). A court will

ordinarily grant declaratory relief if doing so would “(1) serve

a useful purpose in clarifying the legal relations at issue; or

(2) terminate uncertainty, insecurity or controversy surrounding

the parties’ relations.” First Fishery Dev. Serv., Inc. v. Lane

Labs USA, Inc., No. CIV. 97-1069-R, 1997 WL 579165 (S.D. Cal.

July 21, 1997) (citing Guerra v. Sutton, 783 F.2d 1371, 1376 (9th

Cir. 1986)). 

That a defendant’s liability may be contingent does not

necessarily defeat jurisdiction of a declaratory judgment action,

and the Act allows a plaintiff to bring a claim in certain cases

of unresolved contingencies. Bancard Serv., Inc. v. E*Trade

Access, Inc., 292 F. Supp. 2d 1235, 1238 (D. Or. 2003) (citing

Assoc. Indem. Corp. v. Fairchild Indus., Inc., 961 F.2d 32, 35

(2d Cir. 1992)). Indeed, the Second Circuit has noted that

“litigation over insurance coverage has become a paradigm for

asserting jurisdiction despite contingencies that will determine

whether a controversy ever becomes real.” Id. 

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Similarly, the Tenth Circuit has found that an action may state

an actual controversy even though “subsequent events may create

new controversies,” and a declaratory judgment may serve “the

useful purpose of determining which insurer should take immediate

charge of the defense in the pending tort suit.” State Farm Ins.

Co. v. Mid-Continent Cas. Co., 518 F.2d 292, 296-97 (10th Cir.

1975). In cases in which a defendant’s liability is contingent,

the court should focus on “the practical likelihood that the

contingencies will occur.” Bancard Serv., Inc., 292 F. Supp. 2d

at 1238 (quoting Assoc. Indem. Corp., 961 F.2d at 35 (internal

citations omitted)).

Furthermore, the Act may “bring[] to the present a litigable

controversy, which otherwise might only be tried in the future.” 

Societe de Conditinnement en Aluminum v. Hunter Eng’g Co., Inc.,

655 F.2d 938, 943 (9th Cir. 1981). Parties “whose interests are

jeopardized or challenged even before a right of action exists or

cause of action accrues” may benefit from a declaratory judgment. 

Maryland Cas. Co. v. Hubbard, 22 F. Supp. 697, 699 (S.D. Cal.

1938). Indeed, the existence of a cause of action is not

essential to a declaration. Id. at 702. In Maryland Casualty,

an insurer sued its insureds and another insurer of the insureds

for declaratory relief. In that case, the court stated that “the

preventative character of declaratory relief permits the

adjudication of the relationship between the two insurers here

and their conflicting legal interests.... This may be done before

one of the insurers has suffered a loss upon which it can sue the

other directly.” Id. Thus, the defendant-insurer was properly

party to the plaintiff insurer’s suit. Id. 

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In the present case, it is clear that a declaration of the

rights, duties, obligations and interests of Allstate and Allied

would affect the “substantive legal rights of the parties.” 

Hillblom, 896 F.2d at 430. It is certainly not a stretch to find

that Allstate and Allied have, or will have, quite clearly

conflicting legal interests. Furthermore, a declaratory judgment

regarding the rights and interests of Allstate and Allied would

serve the intended purpose of a declaratory judgment, by

clarifying the legal relations of the parties and terminating the

current uncertainty surrounding the parties’ legal relations. 

The fact that Allstate’s liability is contingent on the

Court’s determination of Allied’s rights and duties does not

necessarily defeat the Court’s jurisdiction over Allied’s

declaratory judgment action. In accepting Allied’s factual

allegations as true, the Court must assume a practical likelihood

that Allied’s policy will be rescinded, or that Allied will not

be obligated to defend the Robertses in the action against them

in state court. Should these contingencies occur, Allstate’s

legal rights and interests will be implicated. 

Furthermore, this is a case in which an action for a

declaratory judgment simply serves to bring to the present a

litigable controversy “which might otherwise be tried in the

future,” as Allied or the Robertses may very well have claims

against Allstate once Allied’s obligations to the Robertses are

determined. Thus, Allstate is a party whose interests are

“jeopardized or challenged even before a right of action exists.” 

Maryland Cas. Co. v. Hubbard, 22 F. Supp. at 699. 

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Indeed, as the Maryland Casualty court clearly stated, “the

preventative character of declaratory relief permits the

adjudication of the relationship between the two insurers...and

their conflicting legal interests...before one of the insurers

has suffered a loss upon which it can sue the other directly.” 

Id. at 702. Thus, although Allied has not yet suffered a loss

upon which it can sue Allstate, the present action is suited for

the benefits of a declaratory judgment. 

Accordingly, the Court finds that Allied has pleaded facts

against Allstate sufficient to state a claim or controversy under

the Declaratory Judgment Act.

B. Decision to Exercise Jurisdiction 

Once a district court has determined whether a case or

controversy exists under the Declaratory Judgment Act, the court

must then determine whether it will exercise its subject matter

jurisdiction. Principal Life Ins. Co. v. Robinson, 394 F.3d 665,

669. In making this determination, the “Brillhart factors remain

the philosophic touchstone for the district court.” Gov’t Emps.

Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998). The

Brillhart factors require that in deciding whether to exercise

its subject matter jurisdiction, the court should (1) avoid

needless determination of state laws; (2) discourage litigants

from filing declaratory actions as a means of forum shopping; and

(3) avoid duplicative litigation. See id.; Brillhart v. Excess

Ins. Co. of Am., 316 U.S. 491 (1942). 

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In the present case, considerations of judicial economy and

avoiding duplicative litigation are particularly relevant. 

Should the Court decline to exercise its subject matter

jurisdiction in this case, and leave undetermined Allstate’s

rights and obligations in regards to both the Robertses and

Allied, Allstate may very well bring an action for a declaratory

judgment at a later date. In order to preclude this possibility,

and thus avoid duplicative litigation and conserve precious

judicial resources, the Court determines that the exercise of its

subject matter jurisdiction is appropriate in this case.

Allstate’s Motion to Dismiss is therefore denied.

CONCLUSION

As a matter of law, and for the reasons set forth above,

Defendant’s Motion to Dismiss Plaintiff’s Complaint (ECF No. 6)

is DENIED. 

3

IT IS SO ORDERED.

Dated: June 20, 2011

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

 Because oral argument was not of material assistance, the 3

Court ordered this matter submitted on the briefs. E.D. Cal.

Local Rule 230(g).

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