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Wood v. Nautilus Insurance Group

United States District Court, D. Nevada

December 26, 2017

ROBERT “SONNY” WOOD, an individual; ACCESS MEDICAL, LLC, a Delaware limited liability company, Plaintiffs,
v.
NAUTILUS INSURANCE GROUP, a Delaware limited liability company, et al., Defendant.

          ORDER (DEF.'S MOTION TO DISMISS - ECF NO. 8, DEF.'S MOTION TO STRIKE - ECF NO. 11, PLS.' MOTION TO REMAND - ECF NO. 18)

          MIRANDA M. DU, UNITED STATES DISTRICT JUDGE.

         I. SUMMARY

         Before the Court are three motions: Plaintiffs Robert “Sonny” Wood and Access Medical, LLC's (together, “Insureds”) motion to remand (ECF No. 18); Defendant Nautilus Insurance Group's (“Nautilus”) motion to dismiss (ECF No. 8); and Nautilus's motion to strike (ECF No. 11). The Court has reviewed the parties' responses and replies (ECF Nos. 19, 20, 26, 27, 29, 35). For the reasons discussed below, the Insureds' motion to remand is denied, Nautilus's motion to dismiss is granted in part and denied in part, and Nautilus's motion to strike is denied as moot.

         II. BACKGROUND

         This action is intertwined with two other actions, one filed in California state court in 2011 (“Switzer Action”) and the other filed in this Court in 2014 (“Coverage Action”). In the Switzer Action, a non-party named Ted Switzer alleged four claims for interference with prospective economic advantage against the Insureds. In the Coverage Action, Nautilus obtained a declaration that it was not required to defend or indemnify the Insureds in the Switzer Action. In the current action, the Insureds primarily contend that Nautilus was required to defend and indemnify them in the Switzer Action after all.

         The Switzer Action arose from a soured business relationship formed between Plaintiff Wood and a non-party, Ted Switzer. (See ECF No. 13-1 at 3.) Wood and Switzer founded Flournoy Management, LLC (“Flournoy”) to market and sell medical implants.[1](Id.) When the relationship deteriorated, Switzer initiated the Switzer Action against Wood and Flournoy to compel access to Flournoy's books and records. (ECF No. 1-1 at 9-10.) In the course of the Switzer Action, Switzer filed a cross-complaint asserting inter alia four claims for interference with prospective economic advantage against the Insureds. (See ECF No. 13-1 at 3, 7.)

         Nautilus initiated the Coverage Action after the Insureds requested that Nautilus defend them in the Switzer Action. (ECF No. 1-1 at 12-13.) Nautilus sought a declaration in the Coverage Action that it did not owe a duty to defend or indemnify the Insureds. (Id. at 13.) The Insureds argued that Nautilus owed a duty to defend and indemnify because Switzer might advance a defamation claim based on certain factual allegations in his cross-complaint. (ECF No. 13-1 at 7.) (The insurance policy essentially required Nautilus to defend the Insureds against defamation claims.[2]) Nautilus argued that the factual allegations in the cross-complaint, coupled with the lack of any live defamation claims, were insufficient to trigger its duty to defend and indemnify. (See id.) The Court agreed with Nautilus and declared that it did not owe a duty to defend or indemnify. (Id. at 12.)

         Despite that judgment, the Insureds filed suit against Nautilus alleging five claims that are now pending before this Court: (1) declaratory relief (in the form of declarations that Nautilus owed a duty to defend and indemnify in the Switzer Action and that Nautilus was required to pay in full for the Insureds' independent counsel); (2) breach of contract; (3) breach of implied covenants; (4) promissory estoppel; and (5) violation of various provisions of NRS § 686A.310, which prohibits insurers from engaging in certain unfair claims settlement practices. (ECF No. 1-1.) Although the Insureds initially filed the lawsuit in Nevada state court, Nautilus removed to this Court. (ECF No. 1.)

         III. MOTION TO REMAND (ECF No. 18)

         A. Legal Standard

         Federal courts are courts of limited jurisdiction, having subject-matter jurisdiction only over matters authorized by the Constitution and Congress. U.S. Const. art. III, § 2, cl. 1; see also Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A suit filed in state court may be removed to federal court if the federal court would have had original jurisdiction over the suit. 28 U.S.C. § 1441(a). However, courts strictly construe the removal statute against removal jurisdiction, and “[f]ederal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The party seeking removal bears the burden of establishing federal jurisdiction. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir. 1988).

         To establish subject matter jurisdiction pursuant to diversity of citizenship, the party asserting jurisdiction must show: (1) complete diversity of citizenship among opposing parties and (2) an amount in controversy exceeding $75, 000. 28 U.S.C. § 1332(a). Where it is not facially evident from the complaint that $75, 000 was in controversy at the time of removal, a defendant seeking removal must prove, by a preponderance of the evidence, that the amount in controversy requirement is met. Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004).

         Under a preponderance standard, a removing defendant must “provide evidence establishing that it is ‘more likely than not' that the amount in controversy exceeds” the jurisdictional minimum. Id. at 1117 (quoting Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996)). As to the kind of evidence that may be considered, the Ninth Circuit has adopted the “practice of considering facts presented in the removal petition as well as any ‘summary-judgment-type evidence relevant to the amount in controversy at the time of removal.'” Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 2003) (quoting Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997)). Conclusory allegations are insufficient. Id.

         B. Discussion

         1. Diversity of Citizenship

         Insureds first argue that removal is improper because Nautilus's petition for removal fails to allege the citizenship of the owners of Access. (ECF No. 18 at 3.) “[A]n LLC is a citizen of every state of which its owners/members are citizens.” Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Thus, Insureds contend that Nautilus “is required to prove that every owner and member of Access is a citizen of a different state than Nautilus.” (ECF No. 18 at 4.)

         In its petition for removal, Nautilus alleged that Wood is a citizen of Nevada and that Access is a Delaware company with its principal place of business in Nevada. (ECF No. 1 at 3.) Nautilus also alleged its own citizenship in Arizona. (Id.) While Nautilus did not expressly enumerate every owner and member of Access and identify their citizenship, it had good reason-Wood testified under oath that “he is, and always has been, the sole member of Access.” (ECF No. 29 at 12 (citing ECF No. 32-5 at 5-7).) Insureds do not dispute this fact. (See ECF No. 35.) Accordingly, the Court finds that Nautilus has demonstrated complete diversity.

         2. Amount in Controversy

         Insureds additionally argue that removal is improper because Nautilus did not set forth any evidence that the amount in controversy exceeds $75, 000 in its petition for removal. (ECF No. 18 at 3.) It is not evident from the face of the underlying Complaint that Insureds seek more than $75, 000 in damages. (See ECF No. 1-1 at 24.) However, the Insureds clarify in their reply that they only seek damages related to Nautilus's failure to defend, allowing the Court to exclude indemnification for damages awarded in the Switzer Action. (ECF No. 35 at 3 (citing ECF No. 1-1 at 24).)

         Nautilus's strongest argument is that the defense costs sought by Insureds exceed $75, 000. (ECF No. 29 at 9.) While Nautilus provides a number of declarations attesting to various costs, the Court cannot consider those declarations because they constitute inadmissible hearsay. Matheson, 319 F.3d at 1090 (noting that the Ninth Circuit has “endorsed the Fifth Circuit's practice of considering . . . summary-judgement-type evidence relevant to the amount in controversy at the time of removal” (internal quotation marks omitted)); see also Orr v. Bank of Am., 285 F.3d 764, 773 (9th Cir. 2002) (“A trial court can only consider admissible evidence in ruling on a motion for summary judgment.”). Nevertheless, given the extent of litigation that has taken place, it is more likely than not that the defense costs for which Insureds seek damages exceed $75, 000. Using even conservative estimates, the cost of preparing for and defending in a twenty-five-day jury trial easily surpasses $75, 000. Accordingly, the Court finds that Nautilus has sufficiently alleged amount in controversy for purposes of diversity jurisdiction.

         IV. MOTION TO DISMISS (ECF No. 8)

         A. Legal Standard

         A court may dismiss a plaintiff's complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A properly pleaded complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed factual allegations, it demands more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). “Factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Id. at 570.

         In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, a district court must accept as true all well-pleaded factual allegations-but not legal conclusions-in the complaint. Id. at 678. Mere recitals of the elements of a cause of action, supported only by conclusory statements, do not suffice. Id. Second, a district court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff's complaint alleges facts that allow a court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 678. Where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but has not shown-that the pleader is entitled to relief. Id. at 679. When the claims in a complaint have not crossed the line from conceivable to plausible, the complaint must be dismissed. Twombly, 550 U.S. at 570.

         The Court will consider court records and other documentation from the Switzer Action and Coverage Action in evaluating Nautilus's motion to dismiss without converting it into a motion for summary judgment since both actions are matters of public record. Lee v. City of L.A., 250 F.3d 668, 688-89 (9th Cir. 2001) (citing Fed.R.Evid. 201).

         B. Discussion

         Nautilus contends that the Insureds' claims are barred by issue preclusion and claim preclusion. (ECF No. 8 at 11-13.) Alternatively, Nautilus argues, the Insureds have failed to state claims. (Id. at 15-21.) The Court finds that the Insureds' first three claims (declaratory relief, breach of contract, and breach of implied covenants) are barred by issue preclusion. The Court also finds that the Insureds have failed to state a claim for violation of NRS § 686A.310. However, the Court finds that the Insureds ...


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