Court Opinion

ID: 4532665
Source: CourtListenerOpinion
Date Created: 2020-05-07 20:00:31.1945+00
Date Added: 2024-06-11T09:27:14.758943
License: Public Domain

NOT FOR PUBLICATION                          FILED
                    UNITED STATES COURT OF APPEALS                        MAY 7 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                            FOR THE NINTH CIRCUIT

SCOTTSDALE INSURANCE COMPANY,                   No.    19-55249

      Plaintiff-counter-                        D.C. No.
      defendant-Appellee,                       2:17-cv-07762-PSG-GJS

 v.
                                                MEMORANDUM*
COMPUTER SCIENCES CORPORATION,
a Nevada corporation,

                Defendant-Appellant,

CSC AGILITY PLATFORM, INC., FKA
Servicemesh, Inc., a Delaware corporation,

      Defendant-counter-claimant-
      Appellant.

                   Appeal from the United States District Court
                       for the Central District of California
                   Philip S. Gutierrez, District Judge, Presiding

                             Submitted May 5, 2020**
                               Pasadena, California

Before: M. SMITH, BADE, and BRESS, Circuit Judges.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
         Computer Sciences Corporation and CSC Agility Platform, Inc.

(collectively, “CSC”) appeal the judgment entered by the district court in favor of

Scottsdale Insurance Company in this insurance coverage dispute. We have

jurisdiction under 28 U.S.C. § 1291, we review the grant of summary judgment de

novo, Padfield v. AIG Life Ins. Co., 290 F.3d 1121, 1124 (9th Cir. 2002), and we

vacate and remand.

         1.    In its summary judgment ruling, the district court afforded Question 8

of the insurance renewal application its “ordinary meaning.” In doing so, the

district court rejected CSC’s expert testimony regarding trade usage as “arguably

irrelevant under California law.” CSC contends that this constituted error, and we

agree.

         CSC’s expert, who is described as an expert on insurance policies covering

technology start-ups, testified that, “[i]n the context of underwriting a D&O policy

for a technology start-up, ‘contemplating being acquired’ is a term we use to mean

‘actively considering an offer to buy the company.’” He further opined that “a

technology start-up cannot be ‘contemplating being acquired’ without a term sheet

or concrete offer to purchase ‘the Company’ that can be ‘actively considered.’”

CSC argues that this testimony constitutes evidence of trade usage in the

technology start-up industry. We agree with CSC that the trade usage evidence

could be relevant. See Cal. Civ. Code § 1644 (“The words of a contract are to be

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understood in their ordinary and popular sense . . . unless a special meaning is

given to them by usage, in which case the latter must be followed.”); Ermolieff v.

R.K.O. Radio Pictures, 122 P.2d 3, 6 (Cal. 1942) (“[W]hile words in a contract are

ordinarily to be construed according to their plain, ordinary, popular or legal

meaning, as the case may be, yet if in reference to the subject matter of the

contract, particular expressions have by trade usage acquired a different meaning,

and both parties are engaged in that trade, the parties to the contract are deemed to

have used them according to their different and peculiar sense as shown by such

trade usage.”); S. Pac. Transp. Co. v. Santa Fe Pac. Pipelines, Inc., 88 Cal. Rptr.
2d 777, 785-86 (Ct. App. 1999).

      Accordingly, we remand for the district court to consider CSC’s trade usage

argument under the foregoing legal standards. We express no opinion as to the

merits of the argument, namely, whether the parties in fact intended the phrase

“contemplate transacting any mergers or acquisitions” to have a particular trade

usage meaning, see, e.g., Wolf v. Superior Court, 8 Cal. Rptr. 3d 649, 663 (Ct.

App. 2004), and, if so, the nature of that particularized meaning. The district court

on remand may consider allowing the parties the opportunity for additional

briefing on these questions in determining whether there is a genuine issue of

material fact under the proper legal standards.

      2.     We decline to address the parties’ arguments regarding Question 7.

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The district court may address these arguments in the first instance should the need

arise.

         3.   The district court did not err by concluding as a matter of law that

ServiceMesh’s answer to Question 8 was material.1 CSC’s own expert testified

that the answer to Question 8 was material, and Scottsdale’s underwriter described

the many ways in which a “yes” answer to Question 8 may have affected

Scottsdale’s underwriting decision. Furthermore, under California law, “[t]he fact

that the insurer has demanded answers to specific questions in an application for

insurance is in itself usually sufficient to establish materiality as a matter of law.”

LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 67 Cal. Rptr. 3d 917, 924

(Ct. App. 2007) (quoting Thompson v. Occidental Life Ins. Co., 513 P.2d 353, 360

(Cal. 1973)).

         4.   The district court properly rejected CSC’s waiver defense. Under

California law, “[a]n insurer waives information about a material fact where it

neglects to make inquiry about material facts distinctly implied from other facts

that had been revealed.” Colony Ins. Co. v. Crusader Ins. Co., 115 Cal. Rptr. 3d
611, 619 (Ct. App. 2010) (emphasis added). Here, Scottsdale knew only that

         1
        Although we vacate the grant of summary judgment, we address the
propriety of the district court’s rulings on materiality, waiver, and estoppel “in case
the same issues arise on remand.” United States v. Mancuso, 718 F.3d 780, 796
(9th Cir. 2013).

                                           4
ServiceMesh was involved in merger discussions in October 2013 and was

acquired in November 2013. These facts did not distinctly imply that ServiceMesh

was in acquisition discussions in June 2013, when ServiceMesh submitted the

application. Waiver, therefore, does not apply.

      5.    The district court also properly rejected CSC’s estoppel defense.

Under California law, “where an insurer has actual knowledge that answers in an

application were false, the insurer may be estopped from arguing it was

defrauded.” Id. at 618. Here, Scottsdale did not know that ServiceMesh’s answers

were false. Thus, estoppel does not apply.

      VACATED AND REMANDED. Each party shall bear its own costs on

appeal.

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