Court Opinion

ID: 3199035
Source: CourtListenerOpinion
Date Created: 2016-04-29 00:02:52.705529+00
Date Added: 2024-06-11T14:03:13.451073
License: Public Domain

Filed 3/30/16; pub. order 4/28/16 (see end of opn.)

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FIRST APPELLATE DISTRICT

                                               DIVISION TWO

D. CUMMINS CORPORATION et al.,
         Plaintiffs and Appellants,
                                                          A142985
v.
UNITED STATES FIDELITY AND                                (Alameda County
GUARANTY COMPANY et al.,                                  Super. Ct. No. RG14711136)
         Defendants and Respondents.

         D. Cummins Holding LLC (Holding Co.) appeals from the trial court’s order
sustaining without leave to amend the demurrer of United States Fidelity and Guarantee
Company (U.S. Fidelity) and United States Fire Insurance Company (U.S. Fire)
(collectively, the insurers or defendants),1 to the complaint for declaratory relief filed by
Holding Co. and D. Cummins Corporation (Cummins Corp.) (collectively, plaintiffs),
dismissing Holding Co.’s claims. Holding Co. now contends the trial court erred when it
found that Holding Co. did not have standing to participate in the declaratory relief
action, which involved interpretation of insurance policies the insurers had previously
issued to Cummins Corp. Holding Co. further contends the court abused its discretion
when it found that Holding Co. could not successfully amend the complaint. We shall
affirm the judgment.

         1
         In the trial court, U.S. Fire joined in the demurrer of U.S. Fidelity and, on appeal,
it adopts by reference the respondent’s brief filed by U.S. Fidelity.

                                                      1
                  FACTUAL AND PROCEDURAL BACKGROUND
       The complaint in this matter alleged the following facts. Cummins Corp., a
California corporation formerly known as Valley Asbestos Company, installed asbestos
containing products in California, and had received hundreds of asbestos bodily injury
claims, including many lawsuits, based on exposure to its asbestos containing materials.
Cummins Corp. purchased 19 insurance policies issued by U.S. Fidelity between July 1,
1969 and January 1, 1987, and purchased four insurance policies issued by the
predecessor to U.S. Fire between February 1, 1988 and January 1, 1992. These policies
include “primary, umbrella, and or excess insurance policies,” some of which “may be
missing or only partially documented.”
       Holding Co. is a Delaware limited liability company, formed on January 17,
2014.2 It is the parent and controlling shareholder of Cummins Corp.
       On January 23, 2014, plaintiffs filed a complaint for declaratory relief against the
insurers, in which they sought, in a single cause of action and pursuant to Code of Civil
Procedure section 1060,3 a “declaratory judgment that defendants are obligated to defend
and/or indemnify Cummins [Corp.], in full, including, without limitation, payment of the
cost of investigation, defense, settlement and judgment . . . , for past, present and future
Asbestos Suits under each of the Policies triggered by the Asbestos Suits.” Plaintiffs also
sought additional, detailed declarations regarding the duties of the insurers with respect to
asbestos actions against Cummins Corp.4 The complaint further alleged that the
insurance companies “dispute the relief [plaintiffs] assert is available under the Policies.

       2
         On June 12, 2015, we granted U.S. Fidelity’s unopposed request for judicial
notice of Holding Co.’s January 17, 2014 Certificate of Formation, filed with the
Delaware Secretary of State.
       3
        All further statutory references are to the Code of Civil Procedure unless
otherwise indicated.
       4
        In its opening brief, Holding Co. states that, “[i]n particular, declarations are
sought as to the manner in which the policies’ aggregate limits of liability apply, or do
not apply, to the ongoing asbestos litigation against Cummins Corp.”

                                              2
Consequently, an actual and justiciable controversy exists between [plaintiffs] and
defendants concerning defendants’ respective obligations under their Policies.”
       On February 28, 2014, U.S. Fidelity removed the case to federal court, alleging
that Holding Co. had been “fraudulently joined” as a plaintiff and that its citizenship
should be ignored for diversity purposes. On May 28, 2014, the United States District
Court found that complete diversity did not exist and that it therefore did not have
subject-matter jurisdiction, requiring that the matter be remanded to the state trial court.5
       On July 8, 2014, U.S. Fidelity demurred to Holding Co.’s cause of action for
declaratory relief on the ground that it failed to state facts sufficient to constitute a cause
of action, in that “[t]he Complaint is devoid of any allegation that [Holding Co.] is an
insured under any of the insurance policies alleged in the Complaint or otherwise in
privity with [U.S. Fidelity] and, consequently, [Holding Co.] lacks standing. . . .”
       On September 3, 2014, the trial court sustained the demurrer without leave to
amend,6 explaining: “[U.S. Fidelity] asserts that the complaint fails to state sufficient

       5
         In its order remanding the case, the district court stated: “Whether the owner of
an insured corporation qualifies as an interested person under Section 1060 appears to be
an unresolved question of California state law.” After finding several cases cited by U.S.
Fidelity inapplicable to the present circumstances, the court continued: “With no
California authority interpreting the ‘interested person’ standard in this context, the court
must conclude that whether the shareholder of an insured corporation has standing to sue
the corporation’s insurer for declaratory relief under Section 1060 is not a well-settled
matter of California law.” Because it was “not obvious according to California law that
Plaintiffs fail to state a claim against [the insurers],” the district court declined to find
fraudulent joinder, which precluded the court from ignoring Holding Co.’s presence in
the case for diversity purposes. (Fn. omitted.)
       6
         The trial court first observed that, at the then current stage of the proceedings, it
was “not clear how a demurrer lies, procedurally. However, [U.S. Fidelity], having
answered the complaint, may move for judgment on the pleadings on the same grounds,
under the same legal standards. Thus, the court addresses the merits.” (See IMO
Development Corp. v Dow Corning Corp. (1982) 135 Cal. App. 3d 451, 457 [“a defendant
may move for judgment on the pleadings on the ground that the complaint fails to state a
legally cognizable cause of action”].) We presume the court was referring to the fact that
U.S. Fidelity filed the demurrer more than 30 days after service of the complaint. (See
§ 430.40.)

                                               3
facts as to the holding company plaintiff, [Holding Co.], for a claim for declaratory relief
under [section] 1060. [U.S. Fidelity] argues that the complaint does not state that
Holding Co. was an insured under any alleged insurance policies, state that it was an
additional insured, or otherwise demonstrate privity with [U.S. Fidelity]. Rather, the
complaint admits that the subsidiary, [Cummins Corp.], an installer of insulation, was the
insured. [U.S. Fidelity] argues that Holding Co. cannot be ‘interested’ under a ‘written
instrument’ as required by section 1060, and that there is no legal theory under [which]
Holding Co[.] could assert any underlying claim against [U.S. Fidelity].
       “The court agrees that Plaintiffs have not pleaded, and apparently cannot plead
facts needed for Holding Co[.] to be a ‘person interested under a written instrument’ such
that Holding Co[.] has standing to seek a declaration of its rights under such an
instrument. [¶] While most of [U.S. Fidelity’s] authorities are not on point, the court is
somewhat persuaded, not just by the plain language of section 1060, but by dictum in
Otay Land Co. v. Royal Indem. Co. (2008) 169 Cal. App. 4th 556, which suggests that
while section 1060 is broad, to have standing a party must show that it has some . . .
cognizable legal theory. . . .
       “Plaintiffs have not demonstrated that they can amend to address this issue, and in
light of the facts already pleaded, it would appear to be futile.” The court then granted
the joinder of U.S. Fire and dismissed Holding Co.’s claims.
       On September 9, 2014, Holding Co. filed a notice of appeal.7
                                      DISCUSSION
       Holding Co. contends the trial court incorrectly concluded it did not have standing
to participate in the declaratory relief action. Holding Co. further contends the court
abused its discretion when it found that Holding Co. could not successfully amend the
complaint.

       7
         The declaratory relief action continues in the trial court, with Cummins Corp.
and the insurers as parties.

                                             4
       “For purposes of analyzing the ruling on demurrer, we give the pleading a
reasonable interpretation, reading it as a whole, its parts in their context, to determine
whether sufficient facts are stated to constitute a cause of action or a right to the relief
requested. [Citation.] If a demurrer was sustained without leave to amend, but the defect
was curable by amendment, we would find an abuse of discretion in that ruling.
However, if the order is correct as a matter of law, we would not reverse it. [Citation.]”
(Otay Land Co. v. Royal Indem. Co., supra, 169 Cal.App.4th at pp. 561-562 (Otay),
citing Blank v. Kirwan (1985) 39 Cal. 3d 311, 318 (Blank).)
       Section 1060 provides in relevant part: “Any person interested under a written
instrument . . . or under a contract, or who desires a declaration of his or her rights or
duties with respect to another, or in respect to, in, over or upon property . . . may, in cases
of actual controversy relating to the legal rights and duties of the respective parties, bring
an original action or cross-complaint in the superior court for a declaration of his or her
rights and duties in the premises, including a determination of any question of
construction or validity arising under the instrument or contract. He or she may ask for a
declaration of rights or duties, either alone or with other relief; and the court may make a
binding declaration of these rights or duties, whether or not further relief is or could be
claimed at the time. . . .”
       While section 1060’s language “appears to allow for an extremely broad scope of
an action for declaratory relief” (Otay, supra, 169 Cal.App.4th at p. 562), “an actual
controversy that is currently active is required for such relief to be issued, and both
standing and ripeness are appropriate criteria in that determination. [Citation.]” (Id. at
p. 563.) “One cannot analyze requested declaratory relief without evaluating the nature
of the rights and duties that plaintiff is asserting, which must follow some recognized or
cognizable legal theories that are related to subjects and requests for relief that are
properly before the court.” (Ibid.) In the context of a demurrer, the court will evaluate
“whether the factual allegations of the complaint for declaratory relief reveal that an
actual controversy exists between the parties. [Citation.]” (Id. at p. 562.)

                                               5
       In addition, under section 1061, “The court may refuse to exercise the power
granted by this chapter in any case where its declaration or determination is not necessary
or proper at the time under all the circumstances.” Section 1060 must be read together
with section 1061. (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal. 4th 634, 647.) The trial
court’s determination that a declaration is not necessary or proper in the circumstances is
discretionary, subject to reversal only for an abuse of that discretion. (Ibid.; Otay, supra,
169 Cal.App.4th at p. 563.)
       In Otay, the plaintiff was an owner of real property who brought a declaratory
relief action against the liability insurer of the property’s former owner regarding the
insurer’s anticipated coverage with respect to contamination problems at the property.
(Otay, supra, 169 Cal.App.4th at p. 558.) The plaintiff admitted that it did “not fit into
the usual categories for establishing it has standing to sue, in light of its lack of
contractual privity with the insurer (e.g., such exceptions exist where the third party
plaintiff has a judgment against the insured, or where the insurer has sued the third party
in its own right for declaratory relief, or where there was an assignment by the insured of
its rights under the policy to the third party).” (Id. at p. 565; accord, Royal Indemnity Co.
v. United Enterprises, Inc. (2008) 162 Cal. App. 4th 194, 211 (Royal) [earlier related case
relied on by Otay court].) The plaintiff nonetheless argued that it had standing to bring a
declaratory relief action against the insurer of a policyholder on the ground “that
declaratory relief should be ‘expansively’ allowed.” (Otay, at p. 565.) The appellate
court disagreed, explaining that section 1060 “has never been interpreted as no longer
requiring appropriate standing to seek declaratory relief . . . .” (Otay, at p. 565.) The
court therefore held that the trial court had properly sustained the defendant insurer’s
demurrer without leave to amend because the plaintiff could not plead sufficient facts to
establish it had standing to sue the insurer to determine the applicability of the former
owner’s insurance. (Id. at pp. 558, 567-568.)
       In the present case, Holding Co., like the plaintiff in Otay, asserts that it is an
interested person under section 1060, despite the fact that it is not a party to or directly
affected by the insurance policies that are the subject of the declaratory relief action, and

                                               6
despite the fact that it does not otherwise fit into any of the categories of exceptions to the
requirement of contractual privity. (Otay, supra, 169 Cal.App.4th at p. 565.) Holding
Co. maintains that it nonetheless has a “practical interest in the proper interpretation of
Cummins Corp.’s insurance policies given its relationship to, and its central role in the
pursuit of those insurance assets.” Holding Co. further claims that it “is, most
importantly the sole entity responsible for managing the affairs of Cummins Corp.,
including making decisions as to litigation strategy, resolution and settlement.” (See City
of Santa Monica v. Stewart (2005) 126 Cal. App. 4th 43, 60 [“Standing is measured not
just by a plaintiff’s stake in the resolution of an action, but by the force with which it
presents its case”]; see also California Water & Telephone Co. v. Los Angeles County
(1967) 253 Cal. App. 2d 16, 22-23 [“One who invokes the judicial process does not have
‘standing’ if he, or those whom he properly represents, does not have a real interest in the
ultimate adjudication because the actor has neither suffered nor is about to suffer any
injury of sufficient magnitude reasonably to assure that all of the relevant facts and issues
will be adequately presented”].) Therefore, according to Holding Co., it is “[a]ny person
interested under a written instrument . . . or under a contract, or who desires a declaration
of his or her rights or duties with respect to another” for purposes of participating in a
declaratory relief action against the insurers. (§ 1060.)
       This argument is not persuasive. While Holding Co. may, as it says, have a
“practical interest” in the success of Cummins Corp.’s litigation with the insurers by
virtue of its relationship with the corporation, it has not shown how that indirect
interest—no matter how enthusiastic it may be (see City of Santa Monica v. Stewart,
supra, 126 Cal.App.4th at p. 60)—translates into “a legally cognizable theory of
declaratory relief.” (Otay, supra, 169 Cal.App.4th at p. 562; see Royal, supra, 162
Cal.App.4th at p. 212 [“Only abstract rights and interests have been asserted by
[appellant], and they are too indirect, remote, and consequential”].) Rather, as the trial
court found, it is the corporation itself that has a direct interest in the interpretation of the
policies in question.

                                                7
       It is also notable that California courts have held that a corporation’s shareholders
generally do not have standing to sue the corporation’s insurer. For example in Seretti v.
Superior Nat. Ins. Co. (1999) 71 Cal. App. 4th 920, 922-924 (Seretti), the sole
shareholders of a corporation filed a cross-complaint against the corporation’s workers’
compensation insurance carrier, alleging bad faith. The appellate court affirmed the trial
court’s sustaining of the carrier’s demurrer, explaining: “In accordance with the
overwhelming weight of authority, we affirm the trial court’s ruling on appellants’ lack of
standing to assert a claim against the corporation’s insurer. [¶] . . . Ignoring a
corporation’s separate existence is a rare occurrence, particularly where it is the
shareholders who seek to pierce its veil, and the courts will do so only ‘to prevent a grave
injustice.’. . . The corporation itself, as named insured, can pursue its own rights, and the
shareholders will profit indirectly. [¶] Individuals are free to operate their business in
their own names and accept all its debts and liabilities as their own. Having elected to
avail themselves of the benefits of the corporate structure, as appellants did here, they
cannot be heard to complain of their inability to take personal advantage of a right
belonging to the corporation alone.” (Id. at p. 931; accord, C & H Foods Co. v. Hartford
Ins. Co. (1984) 163 Cal. App. 3d 1055, 1068 [no abuse of discretion in sustaining
demurrers without leave to amend to claims of two 50 percent shareholders who alleged
bad faith and negligent infliction of emotional distress by corporation’s insurer, where
neither shareholder was an insured or a beneficiary under policy].)
       Holding Co. attempts to distinguish Seretti and C & H Foods Co., observing that
those cases involved causes of action for bad faith insurance practices, whereas, here,
Holding Co. is requesting declaratory relief under section 1060. The principles discussed
in those cases are nonetheless relevant to this declaratory relief action in which Holding
Co. has presented no additional facts or legal authority showing that it has standing as
Cummins Corp.’s controlling shareholder to pursue a declaratory relief action against
Cummins Corp.’s insurers. (See Fladeboe v. American Isuzu Motors, Inc. (2007) 150
Cal. App. 4th 42, 55 [sole shareholder did not have standing to seek declaratory relief on
behalf of corporation, except in a derivative action].) Holding Co. formed a limited

                                              8
liability company making it the controlling shareholder of Cummins Corp. just days
before the present action was filed. Cummins Corp., however, remains the named
insured, which “can pursue its own rights, and [Holding Co.] will profit indirectly.”
(Seretti, supra, 71 Cal.App.4th at p. 931.) Holding Co. claims its involvement is needed
to pursue the action and obtain a declaration of the rights and duties both of the insurers
and of Cummins Corp., which has no assets of its own. The evidence, however, shows
that the action continues in the trial court despite dismissal of Holding Co. from the case.8
Hence, Holding Co. has not shown that its participation in the declaratory relief action is
necessary “ ‘to prevent a grave injustice.’ ” (Seretti, at p. 931; cf. California Water &
Telephone Co. v. Los Angeles County, supra, 253 Cal.App.2d at pp. 22-23.)9
       Holding Co. relies on several cases for the proposition that a party can have
sufficient interest in a matter to bring a declaratory relief action even though it is not
directly affected by the contract or regulation that is the subject of the action. (See Olson
v. Toy (1996) 46 Cal. App. 4th 818, 824-825 [decedent’s heirs had standing to maintain an
action for declaratory relief regarding validity of decedent’s trust even though they were

       8
         We take judicial notice of the Alameda County Superior Court’s Register of
Actions, showing continuing case management activity in this matter. (See Evid. Code,
§ 452, subd. (d)(1) [judicial notice may be taken of “[r]ecords of . . . any court of this
state”]; Blank, supra, 39 Cal.3d at p. 318 [in reviewing sufficiency of a complaint against
a general demurrer, we “ ‘consider matters which may be judicially noticed’ ”].)
       9
         Holding Co. also attempts to distinguish Seretti by citing Mycogen Corp. v.
Monsanto Co. (2002) 28 Cal. 4th 888, 899-900, in which the California Supreme Court
referred to a comment in the Restatement Second of Judgments, which provides: “When
a plaintiff seeks solely declaratory relief, the weight of authority does not view him as
seeking to enforce a claim against the defendant. Instead, he is seen as merely requesting
a judicial declaration as to the existence and nature of a relation between himself and the
defendant.” (Rest.2d Judgments, § 33, com. c, p. 335.) The context of the discussion in
that case, however, was whether a judgment granting a party’s request for declaratory
relief and specific performance of a contract precluded, under the doctrine of res judicata,
that party’s subsequent suit for damages for breach of that same contract, a question not
relevant to the issue before us in this case. (Seretti, at p. 897.) Moreover, Holding Co.
has not shown that there exists “a relation between [it] and the defendant[s]” pursuant to
which a declaratory judgment would be warranted.

                                               9
not beneficiaries of trust, since question of trust’s validity directly affected their legal
rights to property under decedent’s will]; Sperry & Hutchinson Co. v. California State
Board of Pharmacy (1966) 241 Cal. App. 2d 229, 233 [plaintiff, a trading stamp vendor
who had contracts with 900 pharmacists for sale of its trading stamps was an interested
person under section 1060 for purposes of declaratory relief action regarding a regulation
that, if enforced, would deprive plaintiff of benefit to be derived from such contracts];
General Ins. Co. v. Whitmore (1965) 235 Cal. App. 2d 670, 673-675 [insurer, which had
sought a declaratory judgment regarding its rights and liabilities under insurance policy
with respect to intentional acts of insured’s son, could join as parties those allegedly
injured by insured’s son to determine proportionate contribution due each claimant if
recovery of damages were later ordered].) These cases are plainly distinguishable in that
all of the parties included in the declaratory relief actions had a legal interest in, or would
be directly affected by, any interpretation of the terms of the insurance policies or
regulation in question. As we have discussed, Holding Co. has not alleged any facts or
legal theory giving it more than an indirect interest in the policies at issue. (Royal, supra,
162 Cal.App.4th at p. 212; see also Otay, supra, 169 Cal.App.4th at p. 562.)
       Likewise, the present matter is not comparable to the cases cited by Holding Co. in
support of its argument that an actual controversy exists between it and the insurers.
(See, e.g., McClain v. Octagon Plaza, LLC (2008) 159 Cal. App. 4th 784, 800 [tenant’s
declaratory relief claim against landlord adequately alleged controversy regarding
tenant’s obligations to pay rent under lease].) Again, Holding Co. has not demonstrated
the existence of an actual controversy between it and the insurers. Hence, the only proper
parties to this declaratory relief action are Cummins Corp. and the insurers.
       In conclusion, given that Holding Co., the controlling shareholder of Cummins
Corp., does not have a contractual relationship with the insurers and is not otherwise
interested in the contract between the corporation and the insurers (see § 1060), the trial
court acted within its discretion when it concluded that a declaration of Holding Co.’s
rights was “not necessary or proper at the time under all of the circumstances.” (§ 1061.)
In addition, because Holding Co. has not shown that there is a reasonable possibility it

                                               10
could amend the complaint to plead facts showing that it is a “person interested under a
written instrument” or demonstrated the existence of an “actual controversy relating to
the legal rights and duties” of it and the insurers (§ 1060), the court did not abuse its
discretion when it sustained the demurrer without leave to amend. (See Blank, supra, 39
Cal.3d at p. 318; Otay, supra, 169 Cal.App.4th at pp. 561-562.)
                                      DISPOSITION
       The judgment is affirmed. Costs on appeal are awarded to defendants U.S.
Fidelity and U.S. Fire.

                                                   _________________________
                                                   Kline, P.J.

We concur:

_________________________
Richman, J.

_________________________
Stewart, J.

                                              11
Filed 4/28/16

                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                             FIRST APPELLATE DISTRICT

                                     DIVISION TWO

D. CUMMINS CORPORATION et al.,
        Plaintiffs and Appellants,                 A142985

v.                                                 (Alameda County
UNITED STATES FIDELITY AND                         Super. Ct. No. RG14711136)
GUARANTY COMPANY et al.,
                                                   ORDER CERTIFYING OPINION
        Defendants and Respondents.                FOR PUBLICATION

THE COURT:

        The opinion in the above-entitled matter filed on March 30, 2016, was not
certified for publication in the Official Reports. For good cause, the request for
publication is granted.
        Pursuant to California Rules of Court, rules 8.1120 and 8.1105(b), the opinion in
the above-entitled matter is ordered certified for publication in the Official Reports.

Dated: _____________________                      _________________________
                                                  Kline, P.J.

                                              1
Trial Court:                                    Alameda County Superior Court

Trial Judge:                                    Hon. George C. Hernandez, Jr.

Attorneys for Plaintiffs and Appellants:        Morgan, Lewis & Bockius LLP
                                                Thomas M. Peterson
                                                Jeffrey S. Raskin
                                                Peter F. McAweeney
                                                Paul A. Zevnik

Attorneys for Defendants and Respondents:       Dentons US LLP
                                                Ronald D. Kent
                                                Susan M. Walker

                                                Nicolaides, Fink, Thorpe, Michaelides,
                                                 Sullivan LLP
                                                Sara M. Thorpe
                                                Seth J. Manfredi

                                            2