Court Opinion

ID: 205859
Source: CourtListenerOpinion
Date Created: 2011-03-03 01:01:46+00
Date Added: 2024-06-11T17:27:49.696815
License: Public Domain

FILED
                             NOT FOR PUBLICATION                              MAR 02 2011

                                                                          MOLLY C. DWYER, CLERK
                      UNITED STATES COURT OF APPEALS                        U.S. COURT OF APPEALS

                              FOR THE NINTH CIRCUIT

CONTINENTAL CASUALTY                             No. 09-55620
COMPANY; TRANSPORTATION
INSURANCE COMPANY,                               D.C. No. 2:04-cv-00132-GW-1

            Defendants-counter-claimants
- Appellants,                                    MEMORANDUM*

       v.

ENODIS CORPORATION,

                Plaintiff-counter-defendant -
Appellee.

ENODIS CORPORATION,                              No. 09-55677

                Plaintiff - Appellant,           D C. No. 2:04-cv-04357-CAS-
                                                 PJW
  v.

CONTINENTAL CASUALTY
COMPANY; TRANSPORTATION
INSURANCE COMPANY,

                Defendants - Appellees.

            *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                   Appeal from the United States District Court
                       for the Central District of California
                   Christina A. Snyder, District Judge, Presiding

                     Argued and Submitted November 4, 2010
                              Pasadena, California

Before: WALLACE and GRABER, Circuit Judges, and MILLS, Senior District
Judge.**

      Following a bench trial, Defendants/Counter-Claimants Continental

Casualty Company and Transportation Insurance Company (collectively “CNA”)

appeal from the district court’s ruling that they could not recover money damages

on their equitable claims for declaratory relief and unjust enrichment. Continental

also appeals from the district court’s denial of its motion for leave to add a claim

for breach of contract to its counter-claim. Plaintiff Enodis Corporation appeals

the district court’s summary judgment rulings limiting the amount of consequential

damages that Enodis could pursue in its breach of contract claims and finding in

favor of CNA on Enodis’s claim for breach of implied covenant of good faith and

       **
             The Honorable Richard Mills, Senior District Judge for the U.S.
District Court for Central Illinois, Springfield, sitting by designation.

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fair dealing. Enodis also appeals from the district court’s finding at trial that it was

not entitled to attorney’s fees for engaging counsel to provide a defense in another

action after CNA refused. We have jurisdiction pursuant to 28 U.S.C. § 1291.

                                           I.

      We review the denial of a motion for leave to amend a complaint for abuse of

discretion. See Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002).

Leave to amend may be denied if, among other reasons, the amendment would result

in undue delay or prejudice the opposing party. Id. Continental filed the motion for

leave to amend more than two and one-half years after the counter-claim was filed and

approximately five months before the trial was then scheduled. We conclude that the

district court did not abuse its discretion in denying leave to amend.

      CNA’s counter-claim sought a declaration that it was entitled to $2.356 million

in reimbursement from Enodis and another $746,507.75 in attorney’s fees.            The

district court ruled at trial that CNA was not entitled to any damages on its declaratory

relief claims under the Federal Declaratory Judgment Act (“FDJA”), 28 U.S.C. §

2201. The FDJA “confers a discretion on the courts rather than an absolute right upon

the litigant.” Pub. Serv. Comm’n v. Wycoff Co., 344 U.S. 237, 241 (1952). The

district court did not err in concluding that granting the relief sought by CNA “would

be inconsistent with both the purpose of declaratory relief in general and with the

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Court’s November 19, 2007 order denying CNA leave to add a breach of contract

claim.”

      CNA next alleges that Enodis was unjustly enriched as a result of retaining

certain funds owed to CNA. The elements of unjust enrichment are “receipt of a

benefit and unjust retention of the benefit at the expense of another.” Lectrodryer v.

SeoulBank, 91 Cal. Rptr. 2d 881, 883 (Ct. App. 2000). Under California law, unjust

enrichment is an action in quasi-contract and is not cognizable when there is a valid

and enforceable contract between the parties. See Paracor Fin., Inc. v. General

Electric Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996). The district court

determined that, because of the insurance policies, CNA’s claim for unjust enrichment

could not lie.   Although CNA alleges that such a result is “inequitable” and

“manifestly unjust” given that it was denied leave to add a breach of contract claim,

we conclude that the district court committed no error.

                                         II.

      In its cross-appeal, Enodis alleges that while the district court’s summary

judgment rulings found its breach of contract claim against CNA for its settlement

conduct to be cognizable, the district court limited Enodis’s damages to those arising

from cases where Enodis was a named defendant in an action alleging defective

furnace claims. “An insurer that breaches its duty of reasonable settlement is liable

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for all the insured’s damages proximately caused by the breach, regardless of policy

limits.” Hamilton v. Maryland Cas. Co., 41 P.3d 128, 133 (Cal. 2002).

      Enodis contends that CNA’s alleged wrongful settlement conduct consists of

(1) its agreement to resolve certain of the claims being asserted against Enodis’s

subsidiary in the Salah class action with respect to certain furnaces without obtaining

releases for claims arising from those furnaces for all of its insureds, including Enodis;

and (2) CNA’s refusal in light of Enodis’s subsidiary’s bankruptcy filing to contribute

to a channeling injunction fund so that all furnace claims could be fully and finally

resolved as against all of its insureds, despite the requests of the bankruptcy trustee,

Enodis, and Enodis’s other insurers to reconsider its decision to enter into a separate

settlement in the Salah class action and to contribute exactly the same funds to a

channeling injunction fund.

      Without expressing our view on the merits of these allegations, we conclude

that Enodis should be permitted to pursue its claims for consequential damages

resulting from the method of settling the furnace-related product liability claims, as

those claims pertain to attorney’s fees, costs, and liability arising out of the KB Home,

Amana, Shea, Shappel, and Stefanshyn actions. Based on the record before us, we are

unable to conclude that the damages arising from these actions was not proximately

caused by CNA’s alleged breach of its settlement duty. The district court, however,

                                            5
correctly determined that Enodis was not entitled to damages in the Trane action

because its payment to settle that case was voluntary. Additionally, to the extent

Enodis seeks damages arising out of the Indiana Avoidance Action, Enodis gives us

no reason to disturb the district court’s conclusion that these damages were not

proximately caused by CNA’s alleged wrongful settlement conduct. See Hamilton,
41 P.3d at 133.

      In its claim for breach of the implied covenant of good faith and fair dealing,

Enodis seeks damages resulting from CNA’s wrongful payments to fund, among other

things, a lawsuit against Enodis. In Jonathan Neil & Associates, Inc. v. Jones, 94 P.3d
1055, 1069-71 (Cal. 2004), the California Supreme Court barred recovery in tort for

breach of the implied covenant of good faith and fair dealing in cases in which the

insurer retroactively bills an insured for an excessive premium. In granting CNA’s

motion for summary judgment, the district court relied on Jonathan Neil. Because

Enodis’s alleged damages do not result entirely from a billing dispute but from CNA’s

alleged improper payment of fees charged by Trane’s counsel to research and

prosecute a legal action by Trane against Enodis, Enodis’s claim for breach of the

implied covenant of good faith and fair dealing is not foreclosed by Jonathan Neil.

      At trial, the district court considered whether CNA may be liable for the

attorney’s fees and expenses incurred by Enodis in defending the Pearce action, a

                                          6
class action suit pertaining to alleged defective furnaces manufactured by Enodis’s

subsidiary. The court found that Enodis is not entitled to such fees, which totaled

$241,658.91, because those fees were voluntary payments and thus barred by the

policies’ “No Voluntary Payment” provisions. Enodis contends that it had a right to

counsel at CNA’s expense.

      Under California law, when an insurer agrees to defend its insured under a

reservation of rights, a conflict exists between the insurer and insured. See San Diego

Navy Fed. Credit Union v. Cumis Ins. Soc’y, Inc., 208 Cal. Rptr. 494, 498 (Ct. App.

1984). In those instances, the insured has a right to retain independent counsel to be

paid for by the insurer, commonly referred to as “Cumis counsel.” See Bogard v.

Employers Cas. Co., 210 Cal. Rptr. 578, 584 (Ct. App. 1985). Because there is no

evidence that Enodis retained counsel because of a conflict with CNA, we are unable

to conclude that it had a right to counsel in the Pearce action at CNA’s expense.

Accordingly, the district court committed no error in determining that Enodis was not

entitled to such fees.

                                         III.

      In summary, we hold the following:

      1. We affirm the decision to deny CNA leave to amend its counter-claim.

                                          7
      2. We affirm the denial of CNA’s counter-claim seeking a declaration of

entitlement to attorney’s fees.

      3. We affirm the denial of CNA’s counter-claim for unjust enrichment.

      4. We affirm the denial of Enodis’s claim for attorney’s fees and expenses

incurred by defending the Pearce action.

      5. We reverse the summary judgment against Enodis’s claims for consequential

damages resulting from CNA’s allegedly wrongful settlement activities, except with

respect to costs incurred by Enodis when it defended and settled the Trane action, and

to the extent that Enodis seeks damages arising out of the Indiana Avoidance Action.

We remand for further proceedings on the merits of those claims.

      6. We reverse the summary judgment against Enodis’s claim for breach of the

implied covenant of good faith and fair dealing. We remand for further proceedings

on the merits of that claim.

      AFFIRMED as to the appeal.

      AFFIRMED in part; REVERSED in part and REMANDED as to the cross-

appeal.

      Plaintiff-Appellant/Counter-Defendant-Appellee awarded costs on appeal.

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