“[F]ederal common law governs the claim-preclusive effect of a dismissal by 28 a federal court sitting in diversity.”
How later courts described this case
- “[F]ederal common law governs the claim-preclusive effect of a dismissal by 28 a federal court sitting in diversity.”
- holding 18 that assignees of rights under insurance contract stood in shoes of insured and were 19 therefore collaterally estopped from relitigating insured’s intent, which had been 20 determined in a state criminal proceeding
Written by the judges who cited it.
The opinion
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
10
11 NATIONAL CASUALTY COMPANY, Case No.: 18-CV-1292 JLS (KSC)
12 Plaintiff,
ORDER: (1) DENYING WITHOUT
13 v. PREJUDICE MOTIONS FOR
SUMMARY JUDGMENT, AND
14 NATIONAL STRENGTH AND
(2) DENYING AS MOOT NSCA’S
CONDITIONING ASSOCIATION,
15 MOTION TO CONTINUE
Defendant. SUMMARY JUDGMENT HEARING
16
17 NATIONAL STRENGTH AND (ECF Nos. 49, 56, 110)
CONDITIONING ASSOCIATION,
18
Counter-Claimant,
19
v.
20
21 NATIONAL CASUALTY COMPANY,
22 Counter-Defendant.
23
24 Presently before the Court are Plaintiff and Counter-Defendant National Casualty
25 Company’s (“NCC”) Motion for Summary Judgment (“Pl.’s MSJ,” ECF No. 49) and
26 Defendant and Counter-Claimant National Strength and Conditioning Association’s
27 (“NSCA”) Motion for Partial Summary Judgment (“Def.’s MPSJ,” ECF No. 56), as well
28 as NSCA’s Motion to Continue the July 2, 2020 Summary Judgment Hearings for the
1 Purposes of Conducting Mediation with CrossFit and NCC (“Mot. to Continue,” ECF No.
2 110). The Court concludes that the Motions are appropriate for disposition without oral
3 argument pursuant to Civil Local Rule 7.1(d)(1). Having carefully considered the Parties’
4 arguments, evidence, and the law, the Court DENIES WITHOUT PREJUDICE both
5 Plaintiff’s Motion for Summary Judgment and Defendant’s Motion for Partial Summary
6 Judgment and DENIES AS MOOT NSCA’s Motion to Continue.
7 BACKGROUND
8 I. The Insurance Policies
9 A. The Primary Policy
10 National Casualty issued a Commercial General Liability policy to the NSCA,
11 identified as Policy No. KRO0000003279700, for the period February 1, 2013, to
12 February 1, 2014 (the “Primary Policy”).1 NSCA’s (1) Resp. to NCC’s Resp. to
13 Undisputed Facts and Add’l Undisputed Facts; & (2) Add’l Undisputed Facts in Resp. to
14 NCC’s Add’l Undisputed Facts Asserted in Support of Its Opp’n (“NSCA’s Facts, ECF
15 No. 88-2”) Nos. 1, 3, 4, 53; NSCA’s Resp. to NCC’s Stmt. of Undisputed Facts &
16 Conclusions of Law (“NCC’s Facts,” ECF No. 68-1) No. 1. The Primary Policy provides
17 Commercial General Liability Coverage pursuant to Form CG 00 01 12 07 (the “CGL
18 Form”), NCC’s Facts No. 2, which contains a section entitled “Coverage B Personal and
19 Advertising Injury Liability” (“Coverage B”). NSCA’s Facts No. 54; NCC’s Facts No. 2.
20 Coverage B provides:
21 [National Casualty] will pay those sums that the insured becomes
legally obligated to pay as damages because of “personal and
22
advertising injury” to which this insurance applies. [National
23 Casualty] will have the right and duty to defend the insured
against any “suit” seeking those damages. However, [National
24
Casualty] will have no duty to defend the insured against any
25 “suit” seeking damages for “personal and advertising injury” to
which this insurance does not apply.
26
27
28
1 The Parties have provided end dates of both February 1, 2014 and February 1, 2015, compare NSCA’s
1 NSCA’s Facts Nos. 1, 3, 4, 54; NCC’s Facts No. 2. The personal and advertising injury
2 limit of liability is $1 million per offense. NSCA’s Facts No. 53.
3 The term “personal and advertising injury” is defined in the Commercial General
4 Liability Broadening Endorsement of the Primary Policy as “injury, including
5 consequential ‘bodily injury,’ arising out of . . . [a]ny publication of material including, but
6 not limited to[,] oral, written, televised, videotaped or electronically transmitted
7 publication of material that slanders or libels a person or organization or disparages a
8 person’s or organization’s goods, products or services.” NSCA’s Facts No. 2; NCC’s Facts
9 No. 3. The Primary Policy excludes coverage for “‘[p]ersonal and advertising injury’
10 caused by or at the direction of the insured with the knowledge that the act would violate
11 the rights of another and would inflict ‘personal and advertising injury,’” NCC’s Facts No.
12 4, and “‘[p]ersonal and advertising injury’ arising out of publication of material, including,
13 but not limited to, oral, written, televised, videotaped or electronically transmitted
14 publication of material, if done at the direction of the insured with knowledge of its falsity.”
15 NCC’s Facts No. 5.
16 The Primary Policy includes coverage for Supplementary Payments, whereby
17 National Casualty agrees to pay “[a]ll court costs taxed against the insured in the ‘suit.’
18 However, these payments do not include attorneys’ fees or attorneys’ expenses taxed
19 against the insured.” NCC’s Facts No. 6.
20 B. The Excess Policy
21 National Casualty also issued an excess liability policy to the NSCA, identified as
22 Policy No. XKO0000003279800, for the period February 1, 2013, to February 1, 2014 (the
23 “Excess Policy”), which provided $4 million in coverage over the scheduled underlying
24 insurance policy limit of $1 million. NSCA’s Facts Nos. 5, 55; NCC’s Facts No. 7. The
25 Commercial Excess Liability Coverage Form in the Excess Policy provides that “[t]he
26 insurance provided under this Coverage Part will follow the same provisions, exclusions
27 and limitations contained in the applicable ‘controlling underlying insurance.’” NCC’s
28 Facts No. 8. The Excess Policy defines “controlling underlying insurance” as “any policy
1 of underlying insurance.’” NCC’s Facts No. 9. The Schedule of Controlling Underlying
2 Insurance in the Excess Policy identifies the Primary Policy. NCC’s Facts No. 10.
3 II. The Underlying Litigation
4 A. The Federal Lawsuit
5 On May 12, 2014, CrossFit, Inc. filed a lawsuit (the “Federal Lawsuit”) against the
6 NSCA in this Court, CrossFit, Inc. v. National Strength and Conditioning Association, No.
7 3:14-CV-1191 JLS (KSC) (S.D. Cal. filed May 12, 2014). NSCA’s Facts No. 7; NCC’s
8 Facts No. 11. The initial complaint alleged that a study authored by Steven Devor, Michael
9 Smith, Allan J, Sommer, and Brooke E. Starkoff and published by NSCA (the “Devor
10 Study”) used data that was “objectively false.” NSCA’s Facts No. 8. According to
11 CrossFit, “[t]he allegation that nine subjects [in the Devor Study] cited ‘overuse or injury’
12 was unfounded and plainly intended to discredit CrossFit by painting it as unsafe due to
13 injury risk.” NSCA’s Facts No. 9. CrossFit asserted causes of action for declaratory relief
14 and violations of the Lanham Act, 15 U.S.C. § 1125(a); False Advertising pursuant to
15 California Business & Professions Code § 17500; and violations of California Business
16 and Professions Code § 17200. NSCA’s Facts Nos. 10, 57; NCC’s Facts No. 12. CrossFit
17 filed a First Amended Complaint on February 25, 2016, adding a cause of action for Trade
18 Libel. NSCA’s Facts at 8 No. 11.
19 On September 21, 2016, the District Court in the Federal Lawsuit issued an Order
20 granting a motion for partial summary judgment filed by CrossFit on the element of falsity
21 as to each of CrossFit’s causes of action against NSCA, finding that CrossFit had presented
22 evidence showing that the injury data published by NSCA was false. NCC’s Facts No. 16.
23 1. The First Sanctions Motion
24 On February 2, 2017, CrossFit filed a motion for terminating sanctions (the “First
25 Sanctions Motion”) against NSCA in the Federal Lawsuit. NSCA’s Facts No. 35. In the
26 Sanctions Motion, CrossFit accused NSCA of numerous discovery abuses and sought
27 terminating sanctions or, in the alternative, issue, evidentiary, and monetary sanctions.
28 NSCA’s Facts No. 36. NSCA’s panel counsel, Manning & Kass Ellrod, Ramirez, Trester
1 LLP (“Manning & Kass”), did not send a copy of the First Sanctions Motion or a summary
2 of its specific allegations to NSCA or NCC until after the Court had ruled on it. NSCA’s
3 Facts Nos. 37–38, 76. On March 9, 2017, Manning & Kass filed an eleven-page opposition
4 to the First Sanctions Motion, NSCA’s Facts Nos. 39–40. The opposition opposed the
5 requested issue, evidentiary, and monetary sanctions in a single paragraph. NSCA’s Facts
6 No. 41. NCC’s appointed counsel did not share a draft or even the final copy of the
7 opposition with NSCA or NCC before filing, NSCA’s Facts Nos. 42, 76, although Manning
8 & Kass did prepare a declaration for Keith Cinea, NSCA’s Education/Publications
9 Director, to be submitted with the opposition and communicated with Mr. Cinea about the
10 declaration. NSCA’s Facts No. 42, 77. Mr. Cinea later testified that he had not read the
11 title of the declaration on the caption page, although he did read Manning & Kass’s
12 description of the First Sanctions Motion, which referred only to a “Motion for Discovery
13 Sanctions.” NSCA’s Facts Nos. 78, 99–100. In any event, Mr. Cinea did not understand
14 what issue, evidentiary, or terminating sanctions were, and Manning & Kass never
15 explained their implications to him. NSCA’s Facts No. 78, 98, 100–01.
16 On May 26, 2017, the Court granted in part and denied in part CrossFit’s First
17 Sanctions Motion (the “First Sanctions Order”). NSCA’s Facts No. 43; NCC’s Facts No.
18 17. The Court explicitly noted that the brief submitted on behalf of NSCA was “an eleven-
19 page Opposition with five-and-a-half pages of background, four pages in part opposing
20 terminating sanctions and in part again summarizing relevant background, and a single
21 paragraph opposing issue, evidentiary, and monetary sanctions,” NSCA’s Facts No. 45,
22 and that NSCA opposed CrossFit’s list of thirty potential issue and adverse inference
23 sanctions in a single paragraph. NSCA’s Facts No. 48. The Court also noted that, “[i]n its
24 Reply, CrossFit points out the numerous issues the NSCA’s Opposition did not address,
25 and therefore tacitly concedes.” NSCA’s Facts No. 46. The First Sanctions Order also
26 stated that “[a]gain, the Opposition nowhere addresses or even mentions these startling
27 federal-discovery omissions.” NSCA’s Facts No. 47.
28 / / /
1 The First Sanctions Order found that NSCA’s Education Coordinator, Nick Clayton,
2 “admitted that several of the statements in his federal-action declaration, submitted under
3 penalty of perjury, were false.” NCC’s Facts No. 21. After enumerating additional
4 instances of discovery abuses by NSCA, the Court noted that, “[u]nfortunately, the Court
5 could go on. But the Court does not need to. There is plainly sufficient evidence to find
6 willfulness, bad faith, or fault on the part of NSCA in withholding the recently discovered
7 documents and in lying under oath in the federal proceedings.” NSCA’s Facts No. 79;
8 NCC’s Facys No. 22. The Court found that “nearly every factor weigh[ed] in favor of
9 imposing terminating sanctions,” but enforced lessor sanctions, including adverse issue
10 sanctions, a neutral forensic evaluation, and monetary sanctions. NSCA’s Facts No. 80.
11 Specifically, the Court awarded several issue and adverse inference sanctions,
12 including that “[i]t is taken as established that NSCA had a commercial motivation for
13 making the false statement in the Devor Study,” “[i]t is taken as established that NSCA
14 and CrossFit are in commercial competition,” “[i]t is taken as established that the NSCA
15 made the false statement in the Devor Study with the intention of disparaging CrossFit and
16 thereby driving consumers to the NSCA,” and “[i]t is taken as established that the NSCA
17 was aware of the misleading nature of the Erratum.” NSCA’s Facts Nos. 44, 82; NCC’s
18 Facts No. 20. The Court also awarded monetary sanctions against NSCA in the amount of
19 $73,550.83, NCC’s Facts No. 18, and imposed against NSCA the costs of a neutral forensic
20 analysis of NSCA’s servers to be commissioned by CrossFit. NCC’s Facts No. 19. The
21 Court also allowed CrossFit to file a Second Amended Complaint, NSCA’s Facts No. 81,
22 which CrossFit filed on June 26, 2017. NSCA’s Facts No. 12.
23 On June 23, 2017, NSCA filed a motion for reconsideration of the First Sanctions
24 Order, NCC’s Facts No. 23, which the Court denied on October 19, 2017. NCC’s Facts
25 No. 24.
26 2. The Second Sanctions Motion
27 CrossFit filed a renewed motion for terminating sanctions (the “Second Sanctions
28 Motion”) on June 20, 2019, alleging further discovery abuses by NSCA. NSCA’s Facts
1 No. 84. On December 4, 2019, the Court entered an Order granting in part and denying in
2 part the Second Sanctions Motion (the “Second Sanctions Order”). NSCA’s Facts No. 85;
3 NCC’s Facts No. 25. In the Second Sanctions Order, the Court specifically noted deletions
4 by Mr. Cinea and Ms. Madden of presumptively relevant documents. NSCA’s Facts No.
5 92. Mr. Cinea and Ms. Madden later testified that nobody at NCC or Manning & Kass told
6 them that they could delete documents during the course of the Federal Lawsuit. NSCA’s
7 Facts Nos. 93–96. Ultimately, the Court concluded that “[n]either CrossFit nor the Court
8 nor the public can trust the veracity of further discovery collected from the NSCA.”
9 NSCA’s Facts No. 87. Accordingly, the Court issued monetary and issue sanctions against
10 NSCA, ordered NSCA’s answers to CrossFit’s complaints stricken, and ordered the clerk
11 to enter default against NSCA. NSCA’s Facts No. 86; NCC’s Facts Nos. 26–28. The
12 monetary sanctions awarded against NSCA were in the amount of $3,997,868.66, NCC’s
13 Facts No. 26, and the additional issues sanctions included that “[i]t is taken as established
14 that NSCA’s unfair competition and false advertising—including its false statements in the
15 Devor Article, Erratum, Hak Study, various TSAC Report articles about CrossFit, content
16 promoted at NSCA events referencing CrossFit-related injuries, and republication of these
17 false statements—were willful and malicious” and “[i]t is taken as established that the
18 NSCA’s unfair competition and false advertising were a material cause of CrossFit’s
19 damages.” NCC’s Facts No. 27.
20 The Court specifically noted in the Second Sanctions Order that “‘NSCA cannot
21 avoid responsibility for its misconduct by blaming its first defense counsel[, Manning &
22 Kass]. . . . Moreover, prior counsel cannot be blamed for the perjury, destruction, and
23 attempted destruction by key NSCA witnesses,’ and the NSCA has engaged in a pattern of
24 concealment and destruction of evidence across several lawsuits.” NSCA’s Facts No. 88;
25 NCC’s Facts No. 29. The Court noted that “Noonan Lance [Boyer & Banach, LLP]
26 formally appeared in this action in August 2017. . . . Nonetheless, mass deletions and
27 deletions of potentially relevant documents continued to occur after that date,” NSCA’s
28 Facts No. 89; NCC’s Facts No. 29, and “NSCA has repeatedly and willfully failed to
1 comply with the Court’s May 26, 2017 Order by filing multiple declarations falsely
2 affirming that no documents relevant to this litigation had been destroyed and by
3 continuing to destroy presumptively relevant documents following the filing of those
4 declarations.” NSCA’s Facts No. 90; NCC’s Facts No. 29. The Court therefore concluded
5 that ““it is ‘[t]he NSCA – not its numerous law firms – [that] is the common denominator
6 and the true bad actor.” NSCA’s Facts No. 91; NCC’s Facts No. 29.
7 NSCA has indicated that it intends to appeal the First and Second Sanctions Orders
8 on at least the following grounds: (1) the financial burden imposed on NSCA by the First
9 Sanctions Order, with over $5,000,000 paid to Stroz to date, which NSCA will contend is
10 disproportional to the alleged wrongdoing and alleged harm; (2) the availability of far less
11 severe sanctions; (3) the Second Sanctions Order adopted, for the most part, CrossFit’s
12 arguments in whole without citation to factual support; (4) the lack of demonstrable harm
13 to CrossFit based on neutral forensic evaluator’s findings because of the narrow issues left
14 for trial after the May 2017 Order; and (5) the lack of any showing that CrossFit met its
15 high burden to prove that NSCA acted with an actual intent to deprive CrossFit of
16 information on issues remaining to be tried in the Federal CrossFit Lawsuit. NSCA’s Facts
17 No. 52. NSCA has retained Rupa Singh of Niddrie Adams Fuller & Singh as appellate
18 counsel, and NCC’s claims administrator, K&K Insurance Group, Inc. (“K&K”), paid the
19 retainer that has been applied to her invoice. NSCA’s Facts No. 102.
20 B. The State Lawsuit
21 On May 6, 2016, NSCA filed a complaint against CrossFit in Superior Court,
22 National Strength and Conditioning Association v. Glassman, No. 37-2016-00014339-CU-
23 DF-CTL (S.D. Super. Ct. filed May 2, 2016) (the “State Lawsuit”). NCC’s Facts No. 30.
24 In the State Lawsuit, NSCA sued CrossFit for Trade Libel, Defamation, and Unfair
25 Business Practices. NCC’s Facts No. 31. On May 17, 2018, the discovery referee in the
26 State Lawsuit entered a discovery sanctions order against NSCA in the amount of
27 $410,614.90. NCC’s Facts No. 32.
28 / / /
1 III. NCC’s Reservation of Rights
2 Thomas James, Esq., outside corporate counsel for NSCA, tendered the Federal
3 Lawsuit to National Casualty on behalf of NSCA. NSCA’s Facts No. 58. On May 16,
4 2014, NCC, through K&K, sent a reservation of rights letter (the “2014 Letter”) to
5 Mr. James, acknowledging the potential for coverage and agreeing to defend NSCA in the
6 Federal Lawsuit subject to a reservation of rights. NSCA’s Facts No. 14; NCC’s Facts
7 Nos. 13–14. NCC was not provided an opportunity to review the May 2014 Letter before
8 it was issued to NSCA and did not approve the language contained in it. NSCA’s Facts
9 No. 60.
10 The 2014 Letter stated: “We will continue to investigate and defend you in [the
11 Federal Lawsuit] at this time, but we want you to be aware of certain coverage issues.”
12 NSCA’s Facts No. 15. The 2014 Letter added that, “allegations in the Complaint . . . fit
13 the definition of ‘Personal and Advertising Injury’ as per the policy language. However,
14 there are exclusions cited above that may apply since the allegations in the Complaint
15 include that you had knowledge of the falsity of the information contained in the study.”
16 NSCA’s Facts No. 16; NCC’s Facts No. 15. The 2014 Letter cited the following specific
17 Policy exclusions:
18 a. Knowing Violation of Rights of Another
19
“Personal and advertising injury” caused by or at the direction of
20 the insured with the knowledge that the act would violate the
rights of another and would inflict “personal and advertising
21
injury.[”]
22
b. Material Published with Knowledge of Falsity
23
24 “Personal and advertising injury” arising out of publication of
material . . . if done at the direction of the in[s]ured with
25
knowledge of its falsity.
26
27 NSCA’s Facts No. 17; NCC’s Facts No. 15. The 2014 Letter stated that National Casualty
28 “will be providing [NSCA] with a defense under a reservation of rights. . . . We will be
1 assigning the defense of this matter to Jeffrey Lenkov with Manning & Kass.” NSCA’s
2 Facts No. 18.
3 The 2014 Letter never explicitly advised NSCA of a conflict of interest between
4 NSCA and NCC created by its reservation of certain rights, NSCA’s Facts No. 19, or
5 mentioned NSCA’s right to independent counsel. NSCA’s Facts Nos. 20, 61. The 2014
6 Letter also did not seek, and NCC did not obtain, a written waiver from NSCA of its right
7 to independent counsel. NSCA’s Facts No. 21.
8 On June 21, 2016, John Hapner of K&K sent a letter (the “2016 Letter”) to NSCA
9 that advised NSCA of its right to independent counsel arising from the 2014 Letter.
10 NSCA’s Facts Nos. 22, 62. The 2016 Letter stated:
11 [W]e have now concluded that the reservation of rights issued in
this matter, and which still is in effect, likely created a right on
12
the part of the NSCA to have independent counsel of its choosing
13 to represent its interests in the CrossFit, Inc. matter. While we
believe current counsel is providing a full and complete defense
14
on behalf of NSCA, pursuant to California law, we want to make
15 sure that you are aware of the right of the NSCA to be represented
by counsel of its choosing if it so desires. In fact, if the NSCA is
16
pleased with its current representation, the NSCA may waive its
17 right to independent counsel, and if the NSCA chooses to do so,
please let us know and we will forward the proper waiver form
18
for signature. . . . [I]f the NSCA does wish to select independent
19 counsel, please provide written advise to K&K as to the name
and address of the counsel whom the NSCA selects as its
20
independent defense counsel. . . . Please let us know whether the
21 NSCA wishes to exercise its right to choose independent counsel,
and, if so, the contact information for such counsel. If the NSCA
22
chooses to waive such right, please let us know and we will
23 forward the form necessary to do so.
24 NSCA’s Facts Nos. 23–25, 63. NSCA claims that it had been unaware of its right to
25 independent counsel before it received the 2016 Letter, NSCA’s Facts No. 28, although it
26 did not invoke its right to independent counsel at that time. NSCA’s Facts No. 66.
27 Mr. James later testified that he had viewed the 2016 Letter as “relatively
28 straightforward in saying, one, NSCA has the right to independent counsel. And if you
1 choose to have independent counsel, here is how they are engaged, and here is how they
2 are being paid, being procedural.” NSCA’s Facts No. 67. Based on NCC’s representations,
3 Mr. James did not “investigate what NSCA’s right to independent counsel entailed in June
4 2016,” NSCA’s Facts No. 68, nor did Michael Massik, NSCA’s executive director, do
5 anything to educate himself regarding NSCA’s right to independent counsel in June 2016.
6 NSCA’s Facts No. 69. When NSCA received the 2016 Letter, Mr. James believed “there
7 was no . . . overriding sense that there was a need to have independent counsel,” NSCA’s
8 Facts No. 70, and, as of June 2016, NSCA was aware of no concerns regarding Manning
9 & Kass’s handling of the Federal Lawsuit. NSCA’s Facts No. 74. In consultation with
10 Mr. James, Mr. Massik decided not to invoke the right to independent counsel in June 2016.
11 NSCA’s Facts No. 71. Accordingly, on behalf of NSCA, Mr. James responded to the 2016
12 Letter on July 25, 2016 (the “NSCA Response Letter”), NSCA’s Facts Nos. 26, 72, stating,
13 in relevant part: “As you know, this case has been ongoing for quite some time, with
14 defense counsel provided to NSCA by the law firm of Manning & Kass, insurance defense
15 counsel appointed by the Insurer. Thus, the timing of your letter is duly noted.” NSCA’s
16 Facts Nos. 27, 73. NSCA never signed a written waiver of its rights. NSCA’s Facts No.
17 29.
18 In early 2017, but not later than February 7, 2017, NSCA retained coverage counsel
19 in connection with insurance coverage issues related to another insurer in the Federal
20 Lawsuit. NSCA’s Facts No. 75. NCC again wrote to NSCA on July 12, 2017, further
21 reserving its rights and acknowledging that a year before, it had notified NSCA of its right
22 to independent counsel. NSCA’s Facts No. 32.
23 NCC continued defending NSCA through appointed counsel until NSCA invoked
24 its right to independent counsel in August 2017, NSCA’s Facts No. 30, after NSCA’s
25 coverage counsel had explained the implications of the 2014 Letter, NCC’s reservations,
26 and NSCA’s rights under California Civil Code section 2860 (“Section 2860”). NSCA’s
27 Facts No. 31. It was only after retaining coverage counsel in connection with other
28 coverage issues in the Federal Lawsuit that NSCA understood its rights under Section
1 2860. NSCA’s Facts No. 33. After it retained coverage counsel, NSCA retained Noonan
2 Lance as its independent counsel on August 10, 2017. NSCA’s Facts Nos. 34, 83.
3 III. The Instant Litigation and Motions
4 NCC filed this declaratory relief action on June 14, 2018, see generally ECF No. 1
5 (“Compl.”), “for the purpose of construing and interpreting the terms of insurance contracts
6 and for a determination of the rights and obligations, if any, of the parties arising from the
7 insurance contracts issued by National Casualty to the NSCA.” Id. ¶ 6. Specifically,
8 “National Casualty seeks a declaratory judgment that it does not owe a duty to prosecute,
9 defend or indemnify the NSCA for any of the claims alleged in the Federal Lawsuit and
10 the State Lawsuit.” Id. ¶ 8; see also Prayer ¶¶ 1–52. Among the over fifty declarations
11 NCC seeks are declarations that it is entitled to reimbursement from the NSCA for certain
12 litigation costs expended in the Federal and State Lawsuits. See Prayer ¶¶ 9, 21, 26, 31,
13 36, 50.
14 NSCA filed its Counterclaim for breach of contract, tortious breach of the implied
15 covenant of good faith and fair dealing, and declaratory relief on July 12, 2018. See
16 generally ECF No. 7 at 28–44 (“Countercl.”). In addition to damages, NSCA sought
17 judicial declarations, including that NCC had to honor all duties under the Primary and
18 Excess Policies. See id. ¶ 66; see also generally id. Prayer.
19 Along with its Counterclaim, NSCA also filed a motion to dismiss or, alternatively,
20 to stay this action pending resolution of the Federal and State Lawsuits under Brillhart v.
21 Excess Insurance Company, 316 U.S. 491 (1942), and Montrose Chemical Corporation v.
22 Superior Court, 6 Cal. 4th 287 (1993). See generally ECF No. 9. On February 11, 2019,
23 the Court denied NSCA’s motion, see generally ECF No. 22, concluding that there was
24 “minimal risk of piecemeal litigation” because NCC’s declaratory relief claims were based
25 solely on the issue sanctions already imposed in the Federal Lawsuit and because “the odds
26 that the NSCA w[ould] be litigating the truth or falsity of its statements about CrossFit
27 [wa]s remote in both the Federal and State Lawsuits” given NSCA’s voluntary dismissal
28 of the State Lawsuit and anticipated appeal of the First and Second Sanctions Orders in the
1 Federal Lawsuit. See id. at 10–12. Ultimately, the Court concluded, “[b]ecause each case
2 involves different legal issues, resolution of the State [and Federal Lawsuits] will not affect
3 the Court’s decision in this case.” Id. at 12 (quoting Hanover Ins. Co. v. Poway Acad. of
4 Hair Design, Inc., 174 F. Supp. 3d 1231, 1237 (S.D. Cal. 2016)). The Parties therefore
5 proceeded to discovery. See, e.g., ECF Nos. 29, 46, 48, 63, 75.
6 NCC filed its Motion for Summary Judgment on December 10, 2019, see generally
7 ECF No. 49, and NSCA filed its Motion for Partial Summary Judgment on January 10,
8 2020. See generally ECF No. 56. On June 4, 2020, the Court continued the hearing on the
9 Motions for Summary Judgment to accommodate additional briefing on the following
10 issues:
11 (1) the sufficiency of the reservation of rights letter from Carolyn
Kanalos of K&K Insurance to Thomas James dated May 16,
12
2014, particularly the necessity of the insurer explicitly
13 informing the insured that there exists a conflict of interest and
of the insured’s right to independent counsel; (2) whether breach
14
of the duty to defend resulting from the failure to provide
15 independent counsel in a conflict-of-interest situation gives rise
to a cause of action for damages or for estoppel; (3) who, if
16
anyone, bears the burden of establishing that there would have
17 been a more favorable outcome but-for any such breach of the
duty to defend resulting from the failure to provide independent
18
counsel in a conflict-of-interest situation; and (4) the preclusive
19 effect, if any, of a final judgment following appeal regarding the
issue and/or terminating sanctions [in the Federal Lawsuit].
20
21 ECF No. 107 at 3. The Parties filed the supplemental briefs on June 18, 2020, see ECF
22 Nos. 108 (“Pl.’s Supp. Br.”), 109 (“Def.’s Supp. Br.”), and NSCA filed the instant Motion
23 to Continue on June 24, 2020. See ECF No. 110.
24 LEGAL STANDARD
25 Under Federal Rule of Civil Procedure 56(a), a party may move for summary
26 judgment as to a claim or defense or part of a claim or defense. Summary judgment is
27 appropriate where the Court is satisfied that there is “no genuine dispute as to any material
28 fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a);
1 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Material facts are those that may affect
2 the outcome of the case. Anderson, 477 U.S. at 248. A genuine dispute of material fact
3 exists only if “the evidence is such that a reasonable jury could return a verdict for the
4 nonmoving party.” Id. When the Court considers the evidence presented by the parties,
5 “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be
6 drawn in his favor.” Id. at 255.
7 The initial burden of establishing the absence of a genuine issue of material fact falls
8 on the moving party. Celotex, 477 U.S. at 323. The moving party may meet this burden
9 by identifying the “portions of ‘the pleadings, depositions, answers to interrogatories, and
10 admissions on file, together with the affidavits, if any,’” that show an absence of dispute
11 regarding a material fact. Id. When a plaintiff seeks summary judgment as to an element
12 for which it bears the burden of proof, “it must come forward with evidence which would
13 entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp.
14 Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (quoting Houghton
15 v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)).
16 Once the moving party satisfies this initial burden, the nonmoving party must
17 identify specific facts showing that there is a genuine dispute for trial. Celotex, 477 U.S.
18 at 324. This requires “more than simply show[ing] that there is some metaphysical doubt
19 as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
20 586 (1986). Rather, to survive summary judgment, the nonmoving party must “by her own
21 affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’
22 designate ‘specific facts’” that would allow a reasonable fact finder to return a verdict for
23 the non-moving party. Celotex, 477 U.S. at 324; Anderson, 477 U.S. at 248. The non-
24 moving party cannot oppose a properly supported summary judgment motion by “rest[ing]
25 on mere allegations or denials of his pleadings.” Anderson, 477 U.S. at 256.
26 ANALYSIS
27 NCC seeks summary adjudication in its favor as to the following claims and
28 counterclaims: (1) Count I of the Complaint concerning NCC’s duty to pay monetary
1 sanctions awarded against NSCA in the Federal Lawsuit; (2) Count II of the Complaint
2 concerning NCC’s duty to pay the forensic analysis costs awarded against NSCA in the
3 Federal Lawsuit; (3) Counts III, V, VII, and IX of the Complaint concerning NCC’s duty
4 to defend NSCA in the Federal Lawsuit following entry of the First Sanctions Order on
5 May 26, 2017; (4) Counts IV, VI, VIII, and X of the Complaint concerning NCC’s duty to
6 indemnify NSCA in the Federal Lawsuit following entry of the First Sanctions Order on
7 May 26, 2017; (5) Count XI of the Complaint concerning NCC’s duty to pay monetary
8 sanctions awarded against NSCA in the State Lawsuit; and (6) Counts I, II, and III of the
9 Counterclaim regarding these same issues. See ECF No. 49 at 2–3. A number of the NCC’s
10 arguments are premised on the First and Second Sanctions Orders in the Federal Lawsuit
11 and/or the sanctions imposed in the State Lawsuit. See, e.g., Pl.’s MSJ at 11–14, 14–15,
12 18–22, 22–23, 23–25.
13 For its part, NSCA seeks summary adjudication on its behalf as to the following:
14 (1) NSCA’s first claim for relief in its Counterclaim for breach of contract; (2) Counts III
15 through X of the Complaint on the grounds that (a) NCC is estopped from relying on the
16 First Sanction Order, and/or NCC has a continuing duty to defend NSCA through appeal;
17 and (3) NSCA’s third claim for relief in its Counterclaim for declaratory judgment as to
18 NCC’s duty to defend NSCA through appeal. See ECF No. 56 at 2–3. Both NSCA’s
19 affirmative Motion and its opposition to NCC’s Motion for Summary Judgment contend
20 that NCC should be estopped from relying on the First and Second Sanctions Orders to
21 deny coverage because of NCC’s admitted failure timely to inform NSCA about its right
22 to independent counsel pursuant to Section 2860. See Def.’s MPSJ at 21–24; see also ECF
23 No. 68 (“Opp’n to Pl.’s MSJ”) at 16–21. NCC contends that estoppel is inappropriate
24 because, among other things, NSCA cannot establish detrimental reliance in light of the
25 Court’s conclusion in the Second Sanctions Order that “[p]rior counsel cannot be blamed
26 for the perjury, destruction, and attempted destruction by key NSCA witnesses” and that
27 “it is ‘[t]he NSCA—not its numerous law firms—[that] is the common denominator and
28 / / /
1 the true bad actor.’” ECF No. 85 at 9 (alterations in original) (quoting ECF No. 49-15,
2 Pl.’s Ex. K at 332–33 n. 19).
3 In short, all roads in this case lead to the First and Second Sanctions Orders, which
4 NSCA (repeatedly) vows to appeal. See, e.g., Def.’s MPSJ at 24–25; Opp’n to Pl.’s MSJ
5 at 2, 8, 9, 11, 13–16; ECF No. 88 at 10; Def.’s Supp. Br. at 9. Among other things, the
6 Court therefore ordered the Parties to address “the preclusive effect, if any, of a final
7 judgment following appeal regarding the issue and/or terminating sanctions [in the Federal
8 Lawsuit].” ECF No. 107 at 3. NCC contends that, “[a]ssuming that NSCA appeals the
9 Court’s orders awarding sanctions and entering default against NSCA and that the Ninth
10 Circuit affirms the Court’s rulings, the legal and factual findings made by the Court
11 regarding NSCA’s conduct and liability vis-à-vis CrossFit will preclude NSCA from
12 relitigating those issues in the coverage action.” Pl.’s Supp. Br. at 8. Without citing any
13 authorities, NSCA urges that, “[i]f the [First] and [Second Sanctions] Order[s] are affirmed
14 on appeal, they will be the law of the Federal CrossFit Litigation and will be preclusive as
15 to the discovery omissions,” “[b]ut because these orders do not make a factual
16 determination as to National Casualty’s misconduct or consider any facts that NSCA
17 published the Devor Article actually knowing that the injury rate was allegedly false, they
18 have no further preclusive effect.” Def.’s Supp. Br. at 9–10. NSCA further contends that
19 it “must have the due process opportunity to show – in either the Federal CrossFit Litigation
20 or here – that it made no knowing or intentionally false statements.” Id. at 10.
21 The Court concludes that a final judgment on the merits in the Federal Lawsuit likely
22 will preclude NSCA from relitigating in this case any identical issues determined as
23 sanctions in the Federal Lawsuit, including whether NSCA made any false statements
24 knowingly or intentionally. As NCC notes, see Pl.’s Supp. Br. at 8 n.2, federal common
25 law determines whether a final judgment in the Federal Lawsuit will preclude relitigating
26 the same issues in this suit. See Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497,
27 508 (2001) (“[F]ederal common law governs the claim-preclusive effect of a dismissal by
28 a federal court sitting in diversity.”). The Supreme Court clarified in Semtek, however, that
1 this means the Court is to apply “the law that would be applied by state courts in the State
2 in which the federal diversity court sits,” id., i.e., California law.2
3 “[I]n a new action on a different cause of action, the former judgment is not a
4 complete merger or bar, but is effective as a collateral estoppel, i.e., it is conclusive on
5 issues actually litigated between the parties in the former action.” Interins. Exch. of the
6 Auto. Club v. Super. Ct., 209 Cal. App. 3d 177, 181 (1989) (quoting 7 Witkin, Cal.
7 Procedure (3d ed. 1985) Judgment, § 189, p. 623) (emphasis in original) (citing Corral v.
8 State Farm Mut. Auto. Ins. Co., 92 Cal. App. 3d 1004, 1010 (1979)). The California
9 Supreme Court has recognized that “[t]he doctrine of collateral estoppel precludes
10 relitigation of an issue previously adjudicated if: (1) the issue necessarily decided in the
11 previous suit is identical to the issue sought to be relitigated; (2) there was a final judgment
12 on the merits of the previous suit; and (3) the party against whom the plea is asserted was
13 a party, or in privity with a party, to the previous suit.” Producers Dairy Delivery Co. v.
14 Sentry Ins. Co., 41 Cal. 3d 903, 910 (1986) (quoting People v. Sims, 32 Cal. 3d 468, 484
15 (1982)). Under California law, an insured may be collaterally estopped from relitigating
16 issues determined in a third-party liability action in a subsequent insurance coverage action.
17 See, e.g., State Farm Mut. Auto. Ins. Co. v. Davis, 7 F.3d 180, 183 (9th Cir. 1993) (holding
18 that assignees of rights under insurance contract stood in shoes of insured and were
19 therefore collaterally estopped from relitigating insured’s intent, which had been
20 determined in a state criminal proceeding).
21 NSCA’s main argument against collateral estoppel here is that it “must have the due
22 process opportunity to show – in either the Federal CrossFit Litigation or here – that it
23 made no knowing or intentionally false statements” because “there never was a full and
24 fair opportunity to litigate either (1) the knowing/intentional conduct with respect to the
25 Devor Article; or (2) the discovery omissions, because of National Casualty’s breaches and
26
27 2 In any event, as NCC notes, see Pl.’s Supp. Br. at 8 n.2, “broadly speaking, the principles of preclusion
28 are consistent between California and federal law.” Brown v. Am. Airlines, Inc., 285 F.R.D. 546, 552
1 use of conflicted defense counsel.” Def.’s Supp. Br. at 9–10. One of these arguments has
2 merit, the other does not.
3 The fact that the Federal Lawsuit was decided by default in no way impinges on
4 NSCA’s due process rights: “A party who deliberately precludes resolution of factual
5 issues through normal adjudicative procedures may be bound, in subsequent, related
6 proceedings involving the same parties and issues, by a prior judicial determination reached
7 without completion of the usual process of adjudication” because, “[i]n such a case the
8 ‘actual litigation’ requirement may be satisfied by substantial participation in an adversary
9 contest in which the party is afforded a reasonable opportunity to defend himself on the
10 merits but chooses not to do so.” In re Daily, 47 F.3d 365, 368 (9th Cir. 1995) (footnote
11 omitted). Indeed, generally speaking, “[d]efault judgments are considered ‘final judgments
12 on the merits’ and are thus effective for the purposes of claim preclusion.” In re Garcia,
13 313 B.R. 307, 311–12 (B.A.P. 9th Cir. 2004) (citing Howard v. Lewis, 905 F.2d 1318, 1323
14 (9th Cir.1990)); see also In re Mercury Eng’g, 68 F. Supp. 376, 380–81 (S.D. Cal. 1946)
15 (“[A default] judgment is binding . . . . This is the law of California, as well as the law in
16 general, and as declared by the Courts of the United States.”) (footnotes omitted). The
17 preclusive effect of such judgments is particularly important where, as here, the issues were
18 decided as a sanction because the sanction serves to “compel[] defendants to play the game
19 and abide by the rules” and “[c]laim and defense preclusion are necessary to make the
20 sanction effective.” See, e.g., In re Garcia, 313 B.R. at 312 n.10 (quoting 18A Wright,
21 Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d § 4442).
22 Here, the Court concluded in the Second Sanctions Order that “[t]he severity and
23 frequency of [NSCA’s] bad faith misconduct is as egregious as anything this [C]ourt has
24 ever seen or read in any of the cases.” Pl.’s Ex. K at 343 (quoting Am. Rena Int’l Corp. v.
25 Sis-Joyce Int’l Co., No. CV126972FMOJEMX, 2015 WL 12732433, at *46 (C.D. Cal.
26 Dec. 14, 2015)) (first and third alterations in original). In short, allowing NSCA to
27 relitigate the issues disposed of by sanction for its egregious discovery and litigation
28 misconduct would render those sanctions ineffective, rendering issue preclusion based on
1 those sanctions merited. See, e.g., Tift v. Ball, No. C07-0276RSM, 2008 WL 11389462, at
2 *4 (W.D. Wash. Jan. 4, 2008) (“[T]he default judgment in the underlying lawsuit was
3 rendered as a sanction for [the plaintiff]’s failure to abide by this Court’s rules.
4 Therefore[,] this Court’s finding that a default judgment is a final judgment for purposes
5 of res judicata is justified because it serves to make the sanction effective.”); Greenwich
6 Ins. Co. v. Media Breakaway, LLC, No. CV08-937 CAS (CTX), 2009 WL 2231678, at *5
7 (C.D. Cal. July 22, 2009) (concluding, based on arbitration, that the insured was “precluded
8 from arguing that they did not intentionally and illegally launch ‘spam attacks’ against [the
9 third party victim’s] users” in subsequent coverage action), aff’d, 417 F. App’x 642 (9th
10 Cir. 2011).
11 To the extent NSCA contends that it was denied a full and fair opportunity to litigate
12 the sanctions issued in the Federal Lawsuit because of NCC’s failure timely to inform
13 NSCA of its right to independent counsel, however, NSCA may have a valid argument.
14 See, e.g., Manzanita Park, Inc. v. Ins. Co. of N. Am., 857 F.2d 549, 554 (9th Cir. 1988)
15 (“[T]he conflict of interest which [conflicted panel counsel] faced . . . precludes the
16 operation of collateral estoppel.”) (applying Arizona law). This issue, however, may also
17 definitively be resolved on appeal if the Ninth Circuit affirms the Court’s finding in the
18 Second Sanctions Order that “‘[t]he NSCA cannot avoid responsibility for its misconduct
19 by blaming its first defense counsel[, Manning & Kass]. . . . Moreover, prior counsel
20 cannot be blamed for the perjury, destruction, and attempted destruction by key NSCA
21 witnesses,’ and the NSCA has engaged in a pattern of concealment and destruction of
22 evidence across several lawsuits.” NSCA’s Facts No. 88; NCC’s Facts No. 29. In any
23 event, this issue has not adequately been briefed by the Parties.
24 In short, it appears that the resolution of the instant Motions for Summary Judgment
25 will be driven by a final judgment on the sanctions issued in the Federal Lawsuit as
26 discussed above, including such issues as whether NSCA made knowing or intentionally
27 false statements and whether NSCA may shift any blame for the sanctioned discovery
28 abuses to its allegedly conflicted panel counsel, Manning & Kass. The Court therefore
1 || DENIES WITHOUT PREJUDICE the Motions for Summary Judgment as premature
2 |}and DENIES AS MOOT NSCA’s Motion to Continue.
3 CONCLUSION
4 In light of the foregoing, the Court DENIES WITHOUT PREJUDICE Plaintiff’ s
5 ||Motion for Summary Judgment (ECF No. 49) and Defendant’s Motion for Partial
6 || Summary Judgment (ECF No. 56) as premature pending a final determination on the merits
7 the Federal Lawsuit. The Court therefore DENIES AS MOOT NSCA’s Motion to
8 || Continue (ECF No. 110).
9 IT IS SO ORDERED.
10
11 ||Dated: June 29, 2020 (een
12 on. Janis L. Sammartino
United States District Judge
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