Judge: Armen Tamzarian, Case: 23STCV28065, Date: 2024-05-01 Tentative Ruling

Case Number: 23STCV28065    Hearing Date: May 1, 2024    Dept: 52

Tentative Ruling:

Cross-Defendant Travelers Casualty and Surety Company of America’s Motion to Transfer Venue

            Cross-defendant Travelers Casualty and Surety Company of America (Travelers) moves to transfer venue to the Superior Court for the County of San Bernardino or the County of Riverside.

Requests for Judicial Notice

            Cross-complainant Los Angeles Unified School District (LAUSD) requests judicial notice of 28 exhibits.  LAUSD’s requests for judicial notice are granted. 

Summary of Pleadings

            Plaintiff AMG & Associates, Inc. (AMG)’s operative first amended complaint alleges defendant LAUSD breached five contracts.  LAUSD filed a cross-complaint against AMG alleging five causes of action for breach of the same contracts, a sixth cause of action for declaratory relief against AMG, and a seventh cause of action for declaratory relief against Travelers as AMG’s surety.

Right to Transfer

            Travelers moves to transfer venue under Code of Civil Procedure section 394.   “[A]ny action or proceeding brought by a” local agency “against a resident of another county, city and county, or city, or a corporation doing business in the latter, shall be, on motion of either party, transferred for trial to” a county “other than that in which the plaintiff is situated … and other than that in which the defendant resides, or is doing business, or is situated.”  (Id., subd. (a).)  “Section 394 is intended to guard against possible local bias against out-of-county defendants.  [Citation.]  The local bias against which the statute protects is ‘prejudice resulting from citizens in the county perceiving the trial outcome as tied to their economic interests.’ ”  (Transamerica Homefirst, Inc. v. Superior Court (1999) 69 Cal.App.4th 577, 581.) 

Even when the defendant does not reside in the forum county, “a defendant corporation’s rights under section 394 may be barred because of the existence, nature, and extent of its activities within the forum county.”  (San Francisco Foundation v. Superior Court (1984) 37 Cal.3d 285, 297 (SF Foundation).)  The “presumptive prejudicial advantage in an action” a public agency “brings in its own county” is mitigated when “unjustly favoring” the entity “will injure a local business and its contribution to the community economy.”  (Westinghouse Electric Corp. v. Superior Court (1976) 17 Cal.3d 259, 272 (Westinghouse).) 

“For purposes of section 394(a), a corporation is doing business in a county ‘if its activities in the county are substantial enough that the corporation can reasonably be viewed as being intimately identified with the affairs or closely associated with the people of the community.’ ”  (Kennedy/Jenks Consultants, Inc. v. Superior Court (2000) 80 Cal.App.4th 948, 957 (Kennedy/Jenks).)  “Given that the purpose of section 394 is to prevent a corporate defendant from suffering prejudice in favor of a local governmental entity, the statute should be liberally construed to promote this policy.”  (Ibid.)  “[I]t is the quality of the business connections, and not their quantity or duration, that determines whether a party is doing business locally.”  (Id. at p. 961.) 

In SF Foundation, the California Supreme Court stated, “[T]he standard of ‘doing business’ for purposes of section 394 turns on the extent to which the corporation is viewed as an outsider.”  (SFF, supra, 37 Cal.3d at p. 298.)  “[T]he relevant inquiry is whether, in light not only of the status of the [moving defendant] but also of the nature of the litigation, the [moving defendant] is reasonably likely to be viewed as an outsider.”  (Id. at p. 300.)

            Travelers is entitled to transfer venue to a neutral county under this provision.  LAUSD is a local agency within the County of Los Angeles.  Its cross-complaint’s seventh cause of action against Travelers is an action against a non-resident corporation.  The record contains sufficient evidence showing Travelers is not “doing business” in this county under Code of Civil Procedure section 394(a).  It is not intimately tied with the affairs or closely associated with the people of this community.  It is reasonably likely to be viewed as an outsider.

Travelers submitted the declaration of John M. Fouhy, its “Senior Claim Counsel for Bond & Specialty Insurance.”  (Fouhy Decl., ¶ 1.)  He states, “TRAVELERS is a Connecticut corporation with its principal place of business located at One Tower Square, Hartford, Connecticut 06183.  TRAVELERS is a corporate surety which issues a variety of bonds in connection with construction projects.  While TRAVELERS issues bonds in connection with construction projects situated in Los Angeles County, it is not closely associated with the County of Los Angeles in any substantive manner.  TRAVELERS does not maintain a principal business office in Los Angeles County.”  (Fouhy Decl., ¶¶ 3-5.)

LAUSD’s own evidence includes a publication from “Bankrate” titled “Best cheap homeowners insurance in Los Angeles.”  (RJN, Ex. O.)  The article states, “AAA, USAA, and Travelers [are] some of the beast cheap home insurance companies in Los Angeles.”  (Ibid.)  This article supports the conclusion that Travelers is no more affiliated with Los Angeles than various other insurance companies. 

LAUSD’s evidence also shows Travelers reported about $5 billion in assets and $2 billion in premiums earned in 2023.  (RJN, Ex. W.)  The attachment showing “information concerning activities of insurer members of a holding company group” includes an “organizational chart” listing over 100 affiliated companies in many states and other countries including Australia, Brazil, Canada, Colombia, and the United Kingdom.  (RJN, Ex. W, schedule Y.)

LAUSD further presents evidence Travelers does significant business in this county, including providing surety bonds for numerous large projects, filing many lawsuits, maintaining three offices, and employing people in this county.  The evidence shows merely the quantity of Travelers’ business here.  That Travelers has advertised dozens of job openings and employs an unspecified number of employees in a county of over 9 million people is not mean it “ ‘can reasonably be viewed as being intimately identified with the affairs or closely associated with the people of the community.’ ”  (Kennedy/Jenks, supra, 80 Cal.App.4th at p. 957.)  No evidence demonstrates “the quality of the business connections” that would permit a finding that Travelers “is doing business locally.”  (Id. at p. 961.)  Concluding otherwise based on this record would mean many non-resident corporations with principal places of business elsewhere would be considered “local” simply due to the size of this county’s population and economy.

The Court of Appeal’s decision in Metropolitan Transit System v. Superior Court (2007) 153 Cal.App.4th 293 supports Travelers’ position.  The court reasoned, “[G]iven the overwhelming size of both [defendant or affiliated] corporations’ activities outside of San Diego County, and the limited duration of the construction contract [defendant] performed for” the public entity, the defendant “cannot be considered as closely associated with San Diego County for purposes of applying section 394.”  (Id. at p. 305.)  Here, the record shows Travelers does an overwhelming amount of business outside Los Angeles County. 

The quantity of Travelers’ business in this county does not mitigate the presumptive bias in favor of LAUSD against Travelers.  Travelers is a national corporation not closely affiliated with this county.  The record indicates it may not be associated with any place, except possibly for Connecticut or a specific location there.  The County of Los Angeles is one of many counties throughout the country where Travelers does substantial business.  No reasonable person in this county would consider Travelers “a local business.”  (Westinghouse, supra, 17 Cal.3d at p. 259.)  In this action between LAUSD and Travelers, it is reasonably likely Travelers would be considered an outsider and there would be bias in favor of LAUSD.

Discovery

            LAUSD argues it is “entitled to discovery on this preliminary question” of “the work [Travelers] performs in Los Angeles County” and “to test the veracity of Travelers’ claims.”  (Opp., p. 12.)  LAUSD cites no authority providing it has a right to conduct discovery or that the court has the authority to continue this hearing to permit such discovery.  In the analogous context of a motion to quash service of summons for lack of personal jurisdiction, “[a] trial court has discretion to continue the hearing … to allow the plaintiff to conduct discovery on jurisdictional issues.”  (Burdick v. Superior Court (2015) 233 Cal.App.4th 8, 30.) 

Assuming the same rule applies here, the court exercises its discretion to deny LAUSD’s request.  The court may deny a request for discovery on jurisdictional issues when it “could reasonably conclude further discovery would not likely lead to production of evidence establishing jurisdiction.”  (Beckman v. Thompson (1992) 4 Cal.App.4th 481, 487.)  The court reaches the same conclusion here. 

It cannot reasonably be disputed that Travelers is a large corporation that does a great volume of business throughout the country.  LAUSD provides no reason to conclude it is likely that it can discover some quality of connections deep enough to show Travelers would not be considered an outsider in this county in the context of this action.  Many residents of this County pay taxes that support LAUSD and have children who attend (or attended) LAUSD schools.  They would reasonably consider a judgment in favor of LAUSD to serve their own economic interests.  They would not reasonably consider a judgment against Travelers to injure a corporation that does business locally or to damage Travelers’ contribution to the community’s economy.  No reasonably foreseeable quantity of business by this national surety company, which earns billions in annual revenue, could change that.  

Severance

            LAUSD argues that, if the court grants the motion, only the cross-complaint’s sole cause of action against Travelers should be transferred.  The court agrees.  “[I]f the case involves both a resident and a nonresident cross-defendant, the trial court may order a severance and a separate transfer solely for the nonresident cross-defendant.”  (Ohio Casualty Ins. Group v. Superior Court (1994) 30 Cal.App.4th 444, 452.)

Travelers argues severance would be inefficient and create a danger of conflicting verdicts.  Travelers contends that, rather than declaratory relief, “LAUSD is seeking recovery of the same damages against Travelers that it is seeking against AMG.”  (Reply, p. 5.)  It further argues, “[T]here will be two trials involving the same documentary and testimonial evidence.” 

The court rejects this argument.  Declaratory relief “operates prospectively.”  (Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393, 407.)  It is not proper when “ ‘the rights of the complaining party have crystallized into a cause of action for past wrongs,’ [citation] [and] a money judgment will fully resolve the dispute.”  (Cardellini v. Casey (1986) 181 Cal.App.3d 389, 396.) 

The cross-complaint alleges, “Travelers is obligated to satisfy AMG’s obligations.  If AMG is unable or unwilling to satisfy the District’s liquidated damages claims, Travelers will be contractually obligated by the Bonds to satisfy the District’s damages in excess of $5,838,500 (which damages continue to accrue) up to the penal sum of the Bonds.”  (Cross-Comp, ¶ 129.)  The controversy is prospective because it has yet to be determined if AMG owes any damages to LAUSD.  The cause of action for declaratory relief is essentially binary: Travelers either is or is not obligated to pay whatever damages (if any) AMG ultimately owes LAUSD.  The existence and amount of any such damages will be determined in the action between AMG and LAUSD.  Travelers offers no explanation of why the underlying claims would be litigated in a severed action between LAUSD and Travelers. 

Moreover, LAUSD establishes that at least some of the contracts giving rise to this dispute require litigating claims in this county.  Two of the contracts provide, “The sole forum for resolution of unresolved Claims shall be in the Superior Court of the State of California in the county in which the Project is located.”  (RJN, Ex. BB, ¶ 4.4.12; Ex. CC, ¶ 4.4.12.)  It is also undisputed that AMG’s principal place of business is in the County of Los Angeles.  Travelers’ reply does not address this argument.  Travelers provides no authority that its right to transfer venue under Code of Civil Procedure section 394 can supersede the other parties’ statutory rights and binding agreements to litigate disputes in this county. 

Neutral County or Disinterested Judge

            LAUSD contends Travelers has not established Riverside or San Bernardino are neutral counties.  LAUSD also proposes that the County of Orange may be more convenient and no less neutral.  Plaintiff AMG filed a notice of non-opposition stating it does not oppose the motion to transfer and would prefer Riverside or San Bernardino. 

The record sufficiently indicates the Counties of Orange, Riverside, and San Bernardino are all neutral.  Again, LAUSD presents evidence Travelers does some quantity of business in Riverside and San Bernardino.  For the same reasons as in this county, despite the quantity of Travelers’ business, citizens of those three counties would likely view Travelers as an outsider. 

The court, however, exercises its discretion not to order transfer to a neutral county.  Instead of transferring the action to a neutral county, it will request assignment of a disinterested judge from a neutral county.  LAUSD argues that, rather than transfer, “perhaps more appropriately, the Court should request the assignment by the chairperson of the Judicial Council of a neutral judge to hear the District’s cross-complaint against Travelers.”  (Opp., p. 2.)  The court agrees. 

Code of Civil Procedure section 394(a) provides, “When the action or proceeding is one in which a jury is not of right, … then in lieu of transferring the cause, the court in the original county may request the chairperson of the Judicial Council to assign a disinterested judge from a neutral county to hear that cause and all proceedings in connection therewith.”  After severing the cross-complaint by LAUSD against Travelers, neither party has a right to jury trial of that action.  “[T]here is no right to a jury in an action for declaratory relief, which is equitable in nature.”  (Brennan v. Superior Court (1994) 30 Cal.App.4th 454, 459 (Brennan).)

The court further notes that, despite the provision that the court may request assignment to a disinterested judge “to hear that cause and all proceedings in connection therewith” (CCP § 394(a)), Brennan held that one party’s action within a case involving multiple parties can be severed and assigned to a disinterested judge.  The Court of Appeal stated, “Under the statute allowing permissive joinder (Code Civ. Proc., § 378), the action of each plaintiff has been joined in one case, but they remain independent actions.”  (Brennan, supra, 30 Cal.App.4th at p. 462.)  The same reasoning applies to the statute allowing permissive joinder of defendants.  (CCP § 379.) 

In substance, this case contains three independent actions: (1) AMG’s complaint against LAUSD, (2) LAUSD’s cross-complaint’s first through sixth causes of action against AMG, and (3) the cross-complaint’s seventh cause of action against Travelers.  The latter is the only claim against Travelers.  The court exercises its discretion to sever that action.  For purposes of assignment to a disinterested judge under Code of Civil Procedure section 394(a), the cross-complaint’s seventh cause of action against Travelers constitutes an independent “action or proceeding” where “a jury is not of right.” 

Disposition

            Cross-defendant Travelers Casualty and Surety Company of America’s motion to transfer venue is granted in part.  The court hereby severs the cross-complaint’s seventh cause of action for declaratory relief against Travelers from the remainder of this case.  Under Code of Civil Procedure section 394(a), the court will request the chairperson of the Judicial Council to assign a disinterested judge from a neutral county to hear that cause and all proceedings in connection therewith.