Judge Elaine W. Mandel, Case Number: 23SMCV00235, Date: 2023-10-17 Tentative Ruling

Judge: Elaine W. Mandel, Case: 23SMCV00235, Date: 2023-10-17 Tentative Ruling

Case Number: 23SMCV00235 Hearing Date: October 17, 2023 Dept: P

Tentative Ruling

Hughes v. YS Insurance et al., Case No. 23SMCV00235

Hearing Date October 17, 2023

Defendant YS Insurance’s Demurrer/Motion for Stay Complaint

Plaintiff Hughes alleges defendants YS Insurance and Yulia Shekhtman, acting as agents of First National Insurance and General Insurance, sold her two homeowner insurance policies in 2020. After Hughes’ property was damaged by fire, she learned the policies did not cover the losses because of the property’s proximity to a brush area. Hughes alleges defendants committed professional negligence, breach of fiduciary duty and negligent misrepresentation by selling the policies without informing her it would not cover fire damage.

Hughes filed claims arising out of these policies against First National and General on July 21, 2021 and January 12, 2022. Both were removed to federal court on diversity grounds, and summary judgment was granted against Hughes; appeals are pending.

Defendants YS and Shekhtman argue federal court has prior jurisdiction over claims arising out of the policies, so this state court action is barred due to exclusive concurrent jurisdiction. In the alternative, defendants ask to stay this action pending resolution of the federal appeal to avoid of issue preclusion conflicts.

Under exclusive concurrent jurisdiction, “when two or more courts have subject matter jurisdiction the court that first asserts jurisdiction assumes it to the exclusion of others.” Shaw v. Superior Court (2022) 78 Cal.App.5th 245, 255. The rule is based on the public policy of avoiding conflicts between courts that “might arise if they were free to make contradictory decisions or awards relating to the same controversy[.]” Id. Exclusive concurrent jurisdiction does not require “absolute identity of parties, causes of action or remedies sought in the original and subsequent actions.” Id. at 256. The rule of exclusive concurrent jurisdiction is a “rule of policy or preference” and does not divest a court of jurisdiction. Id. at 255.

Defendants argue exclusive concurrent jurisdiction applies because both this case and the federal cases arise out of the same controversy. Both policies arise out of plaintiff’s purchase of a policy from YS and Shekhtman, who were acting as agents for First National and General, the defendants in the federal case. Though there are different defendants and causes of action, the heart of both the federal and state court cases is validity of the policies.

Here, Hughes alleges defendants negligently sold an inadequate policy that would not cover fire damage. A state court ruling in her favor risks conflict with the Ninth Circuit on causation. If this court ruled Hughes was harmed because defendants negligently sold her an inadequate policy, it would risk contradicting a Ninth Circuit ruling upholding the district court conclusion that the policy is void. The federal case “relates to the same controversy” as the state case, an essential element of exclusive concurrent jurisdiction.

Another element of exclusive concurrent jurisdiction is that both courts possess subject matter jurisdiction. See Shaw at 255. Shaw, which defendants rely on, dealt with two state court claims filed in different counties under PAGA. Id. at 251. Both courts had subject matter jurisdiction over state law PAGA claims.

Unlike in Shaw, where all the relevant claims were in state court, the insurance claims preceding this case are being heard in federal court. First National and General are out-of-state defendants, so Hughes’ claims against them were subject to federal diversity jurisdiction. YS and Shekhtman, however, are citizens of California. Hughes has not proven the Ninth Circuit has diversity jurisdiction over the YS/Shekhtman claims.

Exclusive concurrent jurisdiction cannot apply if the court hearing the first claim does not have subject matter jurisdiction over the second claim. Since the federal court hearing the National General lawsuits (first claim) lacks jurisdiction over the Shekhtman/YS claims (second claim), exclusive concurrent jurisdiction does not apply.

Defendants, in the alternative, request a stay pending final adjudication of the federal cases. The court agrees a stay would be prudent. Issue preclusion “prohibits the relitigation of issues argued and decided in a previous case, even if the second suit raises different causes of action.” DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824. Issue preclusion can be invoked by one who was not a party to the first proceeding and operates as a “shield against one who was party to the prior action to prevent that party from relitigating an issue already settled in the previous case.” Id. pg. 826-827.

The issue of whether the policy is void is being litigated in the Ninth Circuit. If that issue is resolved against Hughes, defendants can assert issue preclusion in the state court case. If no stay is granted, there is a risk defendants will be deprived of the opportunity to assert issue preclusion, and this court’s judgment might conflict with the Ninth’s Circuit ruling.

Although exclusive concurrent jurisdiction does not apply because the federal court lacks subject matter jurisdiction, to avoid inconsistent rulings, the state case will be stayed pending a ruling on the Ninth Circuit appeal. Demurrer OVERRULED. Stay GRANTED.