Judge: Michael P. Linfield, Case: 21STCV46412, Date: 2022-11-28 Tentative Ruling
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Case Number: 21STCV46412 Hearing Date: November 28, 2022 Dept: 34
SUBJECT: Demurrer
and Motion to Strike
Moving Party: Cross-Defendants/Cross-Complainants
Gregory Walston and Walston & Associates d.b.a. The Walston Law Group
Resp. Party: Cross-Defendant/Cross-Complainant General Star Indemnity Company
Walston’s
Demurrer is SUSTAINED in part and OVERRULED in part. The Demurrer is SUSTAINED
without leave to amend as to the Fourth and Fifth Causes of Action as they relate to
claims by and against Plaintiffs Meiner et al. and Co-Claimants Feaver, Heit,
and Heit Law Group. In all other respects, the Demurrer is OVERRULED.
Walston’s Motion to Strike is DENIED.
PRELIMINARY COMMENT
On October 12, 2022, Walston requested that the Court take judicial
notice of a Memorandum Opinion and Order in James River Insurance Company v.
Rinella & Rinella Ltd., et al. (2008) U.S. Dist. LEXIS 82978 (N.D.
Ill.). It appears to the Court that this
district court decision was reversed by the Seventh Circuit Court of Appeals in
James River Insurance Company v. Kemper Casualty Insurance Company (2009)
585 F.3d 382.
“An attorney is an officer of the court and owes the court a duty of
candor . . . The duty of candor is not simply an obligation to answer honestly
when asked a direct question by the trial court. It includes an affirmative
duty to inform the court when a material statement of fact or law has become
false or misleading in light of subsequent events.” (Levine
v. Berschneider (2020) 56 Cal.App.5th 916, 921.) “Honesty in dealing with the courts is of
paramount importance, and misleading a judge is, regardless of motives, a
serious offense.” (Paine v. State Bar (1939) 14 Cal. 2d 150, 154; see
also Di Sabatino v. State Bar (1980) 27 Cal. 3d 159,162-163; Garlow v. State Bar (1982) 30 Cal. 3d
912, 917.) “Counsel should not forget that they are officers of the court, and
while it is their duty to protect and defend the interests of their clients,
the obligation is equally imperative to aid the court in avoiding error and in
determining the cause in accordance with justice and the established rules of
practice.” (Furlong v. White (1921) 51 Cal. App. 265, 271.) This includes the duty to call the court’s
attention to any such law even though it is unfavorable to that party’s
position. (See, e.g., Southern Pacific Transportation Co. v. Public
Utilities Commission (9th Cir. 1983) 716 F.2d 1285, 1291 [court considered
counsel’s failure to cite contrary but controlling authority a dereliction of
duty to the court].)
The Court would like Walston’s counsel to inform the Court whether or
not the district court case was reversed and whether they knew this when they
requested that the Court take judicial notice of this decision.
BACKGROUND:
On January 25, 2022,
Sheehan et al. filed their Cross-Complaint against Cross-Defendants Gregory
Walston and Walston & Associates d.b.a. The Walson Law Group (“Walston”).
On April 21, 2022,
Walston filed their Cross-Complaint against General Star Insurance Company
(actual name General Star Indemnity Company), Robin Amelia Sheehan, Jay Fink,
Noah Meiner, Lennifer Hilliard, and Sandra Wilson.
On April 29, 2022,
Walston filed their First Amended Cross-Complaint (FACC).
On July 22, 2022,
Cross-Defendant/Cross-Complainant General Star Insurance Company (“General
Star”) filed its Cross-Complaint against Meiner et al., Sheehan et al., and
Walston.
On September 21,
2022, Walston filed their Demurrer to General Star’s Cross-Complaint. Their
concurrent filings include: (1) Request for Judicial Notice; (2) Memorandum of
Points and Authorities in support of Demurrer; (3) Exhibit Index; (4) Proposed
Order; (5) Motion to Strike; and (6) Memorandum of Points and Authorities in
support of Motion to Strike.
On October 6, 2022,
General Star filed its Opposition to the Demurrer and its Opposition to the
Motion to Strike.
On October 12, 2022,
Walston filed their Reply. They concurrently filed their Second Request for
Judicial Notice.
ANALYSIS:
I.
Requests for
Judicial Notice
Walston initially requested judicial notice of:
(1) GenStar’s Cross-Complaint, filed July 22, 2022;
(2) Sheehan et al.’s Cross-Complaint, filed January 25, 2022; and
(3) Declaration of Demurring Party, filed August 23, 2022.
Walston filed a second request judicial notice of the Memorandum
Opinion and Order in James River Insurance Company v. Rinella & Rinella
Ltd., et al. (2008) U.S. Dist. LEXIS 82978 (N.D. Ill.).
The Court DENIES both of Walston’s requests for judicial notice. Walston’s
initial request is DENIED as superfluous as to all three items. Any party that
wishes to draw the Court’s attention to a matter filed in this action may
simply cite directly to the document by execution and filing date. (See Cal.
Rules of Court, rule 3.1110(d).) Walston’s second request is DENIED because the
Court does not find a reversed, unpublished opinion from a federal district
court in Illinois to be persuasive.
II.
Demurrer
A. Legal Standard for a Demurrer
A demurrer is a pleading used to test the legal sufficiency of other
pleadings. It raises issues of law, not fact, regarding the form or content of
the opposing party’s pleading. It is not the function of the demurrer to
challenge the truthfulness of the complaint; and for purpose of the ruling on
the demurrer, all facts pleaded in the complaint are assumed to be true,
however improbable they may be. (Code Civ. Proc., §§ 422.10, 589.)
A demurrer can be used only to challenge defects that appear on the
face of the pleading under attack; or from matters outside the pleading that
are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311.) No
other extrinsic evidence can be considered (i.e., no “speaking demurrers”). A
demurrer is brought under Code of Civil Procedure section 430.10 (grounds),
section 430.30 (as to any matter on its face or from which judicial notice may
be taken), and section 430.50(a) (can be taken to the entire complaint or any
cause of action within).
A demurrer may be brought under Code of Civil Procedure section 430.10,
subdivision (e) if insufficient facts are stated to support the cause of action
asserted. A demurrer for uncertainty (Code of Civil Procedure section 430.10,
subdivision (f)), is disfavored and will only be sustained where the pleading
is so bad that defendant cannot reasonably respond—i.e., cannot reasonably
determine what issues must be admitted or denied, or what counts or claims are
directed against him/her. (Khoury v. Maly's of Calif., Inc. (1993) 14
Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague,
“ambiguities can be clarified under modern discovery procedures.” (Id.)
B. Discussion
General Star’s Cross-Complaint alleges
the following causes of action:
(1)
Declaration that
the malpractice lawsuit and the contribution cross-claim do not qualify as a
claim first made during the policy period;
(2)
Declaration that
there is no coverage for the malpractice lawsuit or the contribution
cross-claim due to Sheehan’s prior knowledge of the underlying wrongful acts;
(3)
Declaration that
coverage is precluded by operation of the prior insurance exclusion;
(4)
Declaration that
coverage is precluded by operation of the insured v. insured exclusion;
(5)
Declaration that
coverage is precluded by operation of the contract exclusion.
(General Star Cross-Compl., pp. 8–12.)
Walston demurs against General
Star’s Cross-Complaint, arguing that each of General Star’s causes of action
fails to state a cause of action.
1.
First
Cause of Action
Walson argues that General Star’s
first cause of action fails because: (1) the malpractice lawsuit, which was
filed on April 23, 2021, does not count as a claim under the policy period; (2)
that Sheehan first made their claim against the Walston insureds by filing a
cross-claim against the insureds during the policy period of May 18, 2021 to
May 18, 2022; and (3) that the cross-claim qualifies as a claim first made
during the policy period. (Dem., pp. 2–4.)
General Star argues: (1) that the
malpractice lawsuit does constitute a claim; (2) that therefore the claim was
not first made during the policy period; (3) that, pursuant to the insurance
policy, the claims related to the same wrongful acts or related wrongful acts
shall be deemed to be a single claim; and (4) that the contribution cross-claim
is thus part of the claim made prior to the policy period. (Opp’n to Dem., pp.
9–10.)
On Reply, Walston argues that
federal case law has rejected a single claim argument similar to General Star’s
and that ambiguities should be construed in favor of Walston. (Reply, p. 3–5.)
The Court does not find any
ambiguity here. Rather the Court agrees with General Star that the malpractice
lawsuit constitutes a claim, that the contract treats the claims as a single
claim, that the claims are deemed to have been first made on the date of the
malpractice lawsuit, and that this date is prior to the start of the policy
period.
The Court makes these
findings because the contract language is clear:
“Claim means: 1. A written demand
for monetary damages, including the service of Suit or institution
or arbitration proceedings, by reason of a Wrongful Act.”
(General Star Cross-Compl., Ex. 1, p. 8, Sec. VII, subd. D, bolding omitted,
underlines and italics added.)
“All Claims based upon, arising out
of, directly or indirectly resulting from, in consequence of, or in any way
involving the same Wrongful Act or any Related Wrongful Act or one or more of a
series of similar, repeated, or continuous Wrongful Acts or Related Wrongful
Acts shall be deemed to be a single Claim…. All such Claims
constituting a single Claim shall be deemed to have been first made on the date
on which the earliest of such Claims is first made even if such date is before
the Policy Period.” (Id., Ex. 1, p. 4, Sec. III, subd. C,
bolding omitted, underlines and italics added.)
The Court OVERRULES the
Demurrer on these grounds.
2.
Second
Cause of Action
Walston argues that General Star
fails to state facts that the other Cross-Defendants “had knowledge of any fact,
circumstance, situation, or wrongful act” on the inception date of the Policy
Period. (Dem., p. 4:22–24.)
General Star disagrees, submitting
that “Sheehan is an Insured under the Policy and had unquestionable knowledge
of the Wrongful Acts alleged in the Malpractice Lawsuit, and that those
Wrongful Acts had already given rise to a Claim prior to the Policy’s May 18,
2021 Inception Date of the Policy.” (Opp’n to Dem., p. 11:9–12.)
In his Reply, Walston argues, among
other things, that “General Star treats cross-defendant Sheehan as a stand-in
for the Walston cross-defendants, even though she sued them and it was her
claim they tendered to General Star.” (Reply, p. 4–5.)
Based upon the clear language of the
contract’s text, the Court agrees with General Star.
“The company shall pay on behalf of
the Insured all sums in excess of the Deductible which the Insured becomes
legally obligated to pay as Damages for Claims first made against the Insured
during the Policy Period and first reported to the Company in writing as soon
as practicable during the Policy Period or within the applicable Extended
Reporting Period; provided always that such Wrongful Act takes place:
1.
“During the Policy
Period; or
2.
“Prior the Policy
Period, provided that:
a.
“Such Wrongful Act
and any Related Wrongful Act took place on or after the Retroactive Date; and
b.
“At the Inception Date of this Policy no Insured had
knowledge of any fact, circumstance, situation, or Wrongful Act that may
reasonably be expected to give rise to a Claim against an Insured.”
(General Star Cross-Compl., Ex. 1, p. 3, Sec. I, subd. A, bolding
omitted, underlines and italics added.)
“Each of the following is an Insured
under this Policy to the extent set forth below:
A. “The entity or person designated as
the Named Insured on the Declarations Page;
B. “Any Predecessor Firm of the Named
Insured; [or]
C. “Any past or present partners,
officers, directors, stockholders, members, managing members or employees of
any entity specified in Paragraph A. or B. of this Section, but only with
respect to Claims arising out of Wrongful Acts that took place while acting
within the scope of their duties on behalf of such entity and while employed by
such entity[.]
(Id., Ex. 1, p. 4, Sec. II, subds. A–C, bolding omitted.)
Considering the contract
provisions quoted above, it is a question of fact that cannot be determined on
a demurrer whether any insured under the insurance contract – including Walston
– had the knowledge described by the contract section immediately above. It is
a further question of fact whether Sheehan was insured under this insurance
contract.
In either case, General
Star has alleged that “at the time Sheehan filed the deficient complaint in the
spam email matter, she was an employee of the law firm Walston & Sheehan,
which dissolved December 1, 2019, shortly after the deficient complaint was
filed.” (Id. at ¶ 21, bolding omitted.) These dates were after the
retroactive date but before the inception date of the Policy Period. Moreover,
General Star explicitly alleges that “Sheehan had knowledge that the Wrongful
Acts underlying the Malpractice Lawsuit and the Contribution Cross-Claim may be
reasonably expected to give rise to a Claim against her prior to the May 18,
2021 Inception Date of the Policy.” (Id. at ¶ 54, bolding omitted.) This
is sufficient for survival of this cause of action.
The Court OVERRULES the Demurrer on
these grounds.
3.
Third
Cause of Action
Walston argues that the third cause
of action should fail because “General Star alleges that only Sheehan made such
a claim . . . General star doesn’t allege that its Walston cross-defendants
reported the January 24, 2022 Sheehan cross-claim against them, by notice or
claim, to any other policy of insurance, prior to the alleged May 18, 2021
policy inception date.” (Dem., p. 6:7–12.)
General Star argues that “[j]ust as
the Policy does not differentiate between Insureds with knowledge of the
Wrongful Acts that could give rise to a Claim, it makes no distinction between
Insureds reporting a Claim to another insurer.” (Opposition, p. 12: 5–7,
bolding omitted.)
In Reply, Walston argues
that when construing the prior insurance exclusion: (1) that Walston should not
be broadly equated with Sheehan; and (2) that Sheehan’s reporting to Arch
(another insurance company) should not qualify under the prior insurance exclusion.
(Reply, pp. 5–6.)
Based upon the clear language of the
contract’s text, the Court agrees with General Star.
“The Company has no obligation under
this Policy to pay Damages or Claims Expenses or to provide a defense, in
connection with any Claim: A. based upon or arising out of any fact,
circumstance, situation, Wrongful Act or Related Wrongful Act that has
been the subject of any notice or Claim reported under any other policy of
insurance prior to the Inception Date of the Policy Period.” (General Star
Cross-Compl., Ex. 1, p. 5, Sec. VI, subd. A, bolding omitted, underlines and
italics added.)
It is undisputed that
Sheehan reported this incident to Arch Insurance and that Arch Insurance
responded to Sheehan on May 12, 2021 – which was prior to the Policy Period
inception date of May 18, 2021. (Id., Ex. 3, p. 1.) General Star alleges
this fact, and given the contract clause quoted above, that is sufficient for
survival of this cause of action.
The Court OVERRULES the Demurrer on
these grounds.
4.
Fourth
Cause of Action
Walston argues that the fourth cause
of action is insufficient because although General Star “alleges Sheehan was an
insured, so as to trigger the insured vs. insured exclusion, General Star
doesn’t allege any facts to support no coverage as to the other Claimants.”
(Dem., p. 6–7.)
General Star argues that
“[t]he Walston Insureds recognize the futility of their Demurrer to the Fourth
Cause of Action and seem to admit there is no coverage afforded to the Walston
Insureds for any claims asserted by Sheehan for indemnification of her portion
of the contribution claim by operation of the Insured v. Insured Exclusion.” (Opposition,
p. 12:17–20.)
Walston reiterates its
arguments on Reply. (Reply, p. 6.)
While Walston’s argument is
not sufficient to completely dispose of this cause of action, the Court agrees
with Walston that the insured v. insured exclusion only applies to claims
between insureds, not to claims between insureds and non-insureds.
“The Company has no obligation under
this Policy to pay Damages or Claims Expenses or to provide a defense, in
connection with any Claim: … E. by or on behalf of any Insured or any other
individual or professional corporation who is or was a partner, principal,
officer, director, stockholder, member, or employee of the Named Insured or
Predecessor Firm[.]” (General Star Cross-Compl., Ex. 1, p. 5, Sec. VI, subd. E,
bolding omitted.)
Accordingly, the Court SUSTAINS IN
PART the Demurrer on these grounds. Specifically, the Demurrer is SUSTAINED as
to the Fourth Cause of Action as it relates to claims by and against Plaintiffs
Meiner et al. and Co-Claimants Feaver, Heit, and Heit Law Group.
5.
Fifth
Cause of Action
Walston and General Star essentially
make the same arguments regarding the fifth cause of action as they did for the
Fourth Cause of Action. (Dem., p. 7.; Opp’n to Dem., p. 13; Reply, p. 7–8.)
The Court again agrees with
Walston in the same limited sense that the Settlement Agreement between Walston
and Sheehan only limits insurance coverage between the contracting parties, not
between contracting parties (i.e., Walston and Sheehan) and non-contracting
parties (i.e., Meiner et al. and the other Co-Claimants).
Accordingly, the Court SUSTAINS IN
PART the Demurrer on these grounds. Specifically, the Demurrer is SUSTAINED as
to the Fifth Cause of Action as it relates to claims by and against Plaintiffs
Meiner et al. and Co-Claimants Feaver, Heit, and Heit Law Group.
III.
Motion to Strike
A. Legal
Standard for a Motion to Strike
Any
party, within the time allowed to respond to a pleading, may serve and file a
notice of motion to strike the whole or any part thereof. (Code Civ. Proc., §
435(b)(1)). The notice of motion to strike a portion of a pleading shall quote
in full the portions sought to be stricken except where the motion is to strike
an entire paragraph, cause of action, count or defense. (California Rules of
Court Rule 3.1322.)¿
The
grounds for a motion to strike shall appear on the face of the challenged
pleading or form any matter of which the court is required to take judicial
notice. (Code Civ. Proc., § 437(a)). The court then may strike out any
irrelevant, false, or improper matter inserted in any pleading and strike out
all or any part of any pleading not drawn or filed in conformity with the laws
of this state, a court rule, or an order of the court. (Code Civ. Proc., §
436.) When the defect which justifies striking a complaint is capable of cure,
the court should allow leave to amend. (Perlman v. Municipal Court
(1979) 99 Cal.App.3d 568, 575.)¿
B. Discussion
Walston moves the Court to strike
the portion of General Star’s Cross-Complaint that requests: “(b) Enter an
Order finding and declaring that General Star is not obligated to defend or
indemnify the Walston Insureds in connection with…the Contribution Cross-Claim…”
(Mot. to Strike, p. 2:21–23.) Walston requests this relief “[b]ecause General
Star fails to state causes of action for no coverage….” (Id. at p.
2:24–26.)
General Star refers the
Court to its Opposition to the Demurrer for its arguments. (Opposition to Mot.
to Strike, p. 2:10–12.)
The Court has found that General
Start sufficiently stated causes of action for no coverage.
Accordingly, the Court DENIES
Walston’s Motion to Strike.
IV.
Conclusion
The
Demurrer is SUSTAINED without leave to amend as to the Fourth and Fifth Causes of
Action as they relate to claims by and against Plaintiffs Meiner et al. and
Co-Claimants Feaver, Heit, and Heit Law Group. In all else, the Demurrer is
OVERRULED.
Walston’s Motion to Strike is DENIED.